Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed HDFC ELSS Tax Saver Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

HDFC ELSS Tax Saver Fund is a Tax Saving Mutual Fund that focuses on high-conviction investments, blending growth and value strategies to identify strong stocks at attractive valuations. The fund has delivered impressive growth in the current bull market, ranking among the top performers while avoiding excessive risk.

What is the growth of Rs 10,000 invested in HDFC ELSS Tax Saver Fund five years ago

Past performance is not an indicator of future returns
Data as of December 23, 2024
(Source: ACE MF, data collated by PersonalFN) 

HDFC ELSS Tax Saver Fund, one of the pioneers in the ELSS category, has built a reputation for its disciplined and consistent investment approach since its inception in March 1996. The fund has generated an exceptional CAGR of 23.5%, significantly outperforming its benchmark, Nifty 500 – TRI, over the long term. Its investment philosophy is centred on a blend of growth and value strategies, with a focus on identifying fundamentally strong, high-conviction stocks that are available at attractive valuations. Unlike momentum-driven funds, HDFC ELSS Tax Saver Fund avoids short-term tactical bets, preferring to hold stocks with a long-term view, even if it leads to occasional underperformance.

HDFC ELSS Tax Saver Fund’s journey has not been without challenges. The fund faced rough patches, particularly in 2015 and between 2018 to 2021, as its value-oriented strategy fell out of favour. These phases saw the fund struggling to keep pace with its benchmark and more growth-focused peers. Adding to this, frequent changes in fund management during the past decade raised concerns. However, the fund has since made a strong comeback, especially from 2022 onwards, with its investment strategy paying off as market conditions turned favourable for its high-conviction picks. Its portfolio is now well-positioned to capitalise on the broad-based equity market rally, and it has re-emerged as one of the top performers in the ELSS category.

Over the last five years, HDFC ELSS Tax Saver Fund has grown at a robust CAGR of 21.3%, outpacing the benchmark Nifty 500 – TRI’s 19.1%. An investment of Rs 10,000 in the fund five years ago would now be worth Rs 26,318, compared to Rs 23,934 in the benchmark.

How has HDFC ELSS Tax Saver Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant ELSS Tax Saver Fund	10,799	49.01	29.66	28.02	34.79	25.38	18.44	0.21
SBI Long Term Equity Fund	27,847	53.31	36.18	27.13	24.67	18.08	14.24	0.39
Motilal Oswal ELSS Tax Saver Fund	4,187	57.28	36.89	25.95	24.04	18.29	16.40	0.39
HDFC ELSS Tax Saver Fund	15,945	42.91	30.17	25.52	20.86	15.23	13.05	0.37
Bank of India ELSS Tax Saver	1,453	48.93	31.02	23.20	27.67	20.80	16.04	0.26
JM ELSS Tax Saver Fund	183	46.47	30.11	22.59	23.05	18.49	15.44	0.29
Franklin India ELSS Tax Saver Fund	6,890	41.87	27.77	22.19	20.94	16.27	13.89	0.30
Parag Parikh ELSS Tax Saver Fund	4,385	33.27	24.46	21.89	25.55	—	10.83	0.35
DSP ELSS Tax Saver Fund	16,835	42.68	27.34	21.41	22.76	17.90	14.31	0.30
Bandhan ELSS Tax Saver Fund	6,894	33.47	24.26	21.40	23.44	17.97	14.07	0.24
Nifty 500 – TRI		35.32	22.65	18.36	19.59	15.84	14.45	0.22

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios
are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of December 23, 2024
(Source: ACE MF, data collated by PersonalFN)
Please note, this table only represents the best-performing funds based solely on past returns and is NOT are commendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative
purposes.

HDFC ELSS Tax Saver Fund’s recent performance has been encouraging. After going through a prolonged phase of underperformance, the fund has rebounded with significant gains over the last couple of years. Over the past 2- and 3-year periods, the fund has delivered an average CAGR of approximately 30.2% and 25.5% on a rolling return basis, outpacing both the benchmark and the category average by an impressive 4.9% to 7.5% CAGR. This strong recovery has positioned HDFC ELSS Tax Saver Fund among the top quartile performers in the ELSS category over short to medium-term time frames, while also generating noticeable alpha over its benchmark. Over the longer 5- and 7-year periods, while the fund still slightly lags the category average and benchmark on a rolling return basis, it has the potential to improve further and reward investors for their patience.

HDFC ELSS Tax Saver Fund’s volatility is one of the lowest in its category, significantly below that of the benchmark. Additionally, the fund has delivered strong risk-adjusted returns, reflected in its higher Sharpe ratio of 0.37, which is among the best in the category. These metrics indicate that HDFC ELSS Tax Saver Fund has effectively balanced risk and reward, offering investors stable returns with controlled volatility.

What is the investment strategy of HDFC ELSS Tax Saver Fund?

Categorised as an ELSS, HDFC ELSS Tax Saver Fund is mandated to invest at least 80% of its assets in Indian equities. It has the flexibility to invest without any market cap or sector restriction. Accordingly, it aims to create a diversified portfolio spread across major industries, economic sectors, and market capitalisation that offers an acceptable risk-reward balance. The fund follows a blend of growth and value styles of investing to generate optimal returns. The scheme predominantly invests in companies with strong growth drivers in the medium to long term, especially those which are competitively placed in an industry with good prospects. HDFC ELSS Tax Saver Fund emphasises on companies having strong management with an ability to capitalise on opportunities while managing risks. It also considers the track record of corporate governance, ESG sensitivity, and transparency.

HDFC ELSS Tax Saver Fund primarily maintains a large-cap-focused portfolio, allocating 75-85% of its assets to large-cap stocks, with the remainder invested in mid- and small-cap companies. The fund’s strategy is built on high conviction in its stock picks, holding them with a long-term perspective. As a result, it has kept its turnover ratio relatively low, ranging between 20-40% over the past year.

What are the top portfolio holdings in HDFC ELSS Tax Saver Fund?

Holding in (%) as of November 30, 2024
(Source: ACE MF, data collated by PersonalFN)

HDFC ELSS Tax Saver Fund usually holds about 40 to 50 stocks spread across market caps and sectors. As of November 30, 2024, the fund held 50 stocks in its portfolio with the top 10 stocks accounting for around 57.1% of its assets. Large-cap names such as HDFC Bank, ICICI Bank, Axis Bank, Cipla, and Bharti Airtel currently form part of its top holdings. HCL Technologies, SBI Life Insurance Company, Kotak Mahindra Bank, Maruti Suzuki India, and SBI are among the other stocks that form part of the fund’s top 10 holdings. Most of these stocks have been part of the fund’s core holdings for over 2 years now.

In the last two years, HDFC ELSS Tax Saver Fund benefitted the most from its exposure to Hindustan Aeronautics, Mahindra & Mahindra, and Bharti Airtel that turned out to be multibaggers and collectively contributed around 23.6% to its absolute gains. Prestige Estates Project, ICICI Bank, HCL Technologies, Bajaj Auto, SBI, L&T, and Lupin were among the other top gainers in the portfolio.

In terms of sectors, HDFC ELSS Tax Saver Fund’s portfolio is skewed towards Banking & Finance stocks that collectively form a major 41.2% of its assets. It also holds substantial allocations in Auto, Infotech, Pharma, Telecom, and Healthcare that form another 36.1% of its assets. The fund also holds diversification to Metals, Engineering, Consumer Durables, and Construction among others. While its portfolio has higher allocation to cyclical, it also holds significant exposure to defensive sectors.

Is HDFC ELSS Tax Saver Fund suitable for my investment goals and risk tolerance?

After a prolonged period of subdued growth, HDFC ELSS Tax Saver Fund has delivered an impressive turnaround in recent years, with its high-conviction bets yielding strong results. Its large-cap-biased portfolio helps provide stable returns across different market conditions, offering a contrast to funds with greater exposure to mid- and small-cap stocks.

Due to its high-conviction, value-oriented approach, HDFC ELSS Tax Saver Fund may face short- to medium-term underperformance, especially when its core holdings are out of favour or during market rallies driven by momentum. However, its focus on fundamentally strong stocks positions it well for potential long-term gains, with the ability to deliver solid risk-adjusted returns over extended periods. The fund’s careful investment strategy has resulted in lower volatility compared to its benchmark and many of its peers.

HDFC ELSS Tax Saver Fund is suitable for investors seeking tax-saving mutual fund focusing primarily on large-cap stocks with consistent performance and having a minimum investment horizon of 3 to 5 years.

Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The securities quoted are for illustration only and are not recommendatory.

This article first appeared on PersonalFN here