Tax-saving funds (also referred to as Equity Linked Savings Schemes - ELSS) are well suited for investors willing to take risk. However, at the same time it also provides an opportunity to create wealth in one’s tax-saving portfolio. Moreover, the lock-in period of 3 Years encourages long-term investing, which is a pre-requisite for fruitful return on equity investments. A well managed tax-saving fund can serve a dual purpose i.e. provide tax benefits (under Section 80C of the Income Tax Act, 1961) and assist investors’ to accumulate wealth over the long-term. But to do so, the key lies in selecting a well-managed tax-saving fund with a long term horizon.
DSP BlackRock Tax Saver Fund (DBTSF) is one such open-ended tax saving fund from the stable of DSP BlackRock Mutual Fund, which follows the blend style of investing. DBTSF is primarily mandated to invest in equities and equity-related securities of Indian companies along with debt and money market instruments. Launched in January 2007, the fund has been in existence for nearly 5 years now.
Investment Objective and Proposition
The fund’s primary investment objective is “to seek to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity related securities of corporates, and to enable investor’s avail of a deduction from total income, as permitted under the Income Tax Act, 1961 from time to time.”
The fund is mandated to invest 80% - 100% of its total assets in equity and equity-related securities (of which upto 20% investments can be in ADRs, GDRs, and foreign equity) and the rest – i.e. upto 20% in domestic debt and money market instruments to manage its liquidity requirements.
Over the past one year, DBTSF’s exposure to large cap stocks has been in the range of 59% - 66%, while its exposure to mid & small cap stocks has ranged from of 28% - 37%. The fund has refrained from taking aggressive cash calls, as its investment exposure to debt and cash has been not more that 6.0%. As per the portfolio disclosed on December 31, 2011, fund has allocated 65.8% to large caps, 27.9% towards mid & small caps and has remained in cash to an extent of 6.4% of its portfolio.
Equity Portfolio
| Holdings | Aug 2011 | Sep 2011 | Oct 2011 | Nov 2011 | Dec 2011 |
|---|---|---|---|---|---|
| Infosys Ltd. | 3.1 | 4.9 | 4.9 | 5.1 | 6.1 |
| ICICI Bank Ltd. | 1.6 | 2.6 | 2.8 | 3.3 | 6.0 |
| Reliance Industries Ltd. | 3.3 | 3.4 | 3.8 | 3.7 | 4.4 |
| HDFC Bank Ltd. | 4.4 | 4.4 | 4.5 | 3.4 | 3.4 |
| Bharti Airtel Ltd. | 1.9 | 2.2 | 2.6 | 3.5 | 3.3 |
| Tata Consultancy Services Ltd. | 2.9 | 2.9 | 2.4 | 3.0 | 3.3 |
| State Bank Of India | 3.3 | 3.8 | 3.7 | 4.0 | 2.7 |
| CRISIL Ltd. | 2.3 | 2.5 | 2.3 | 2.5 | 2.6 |
| Kajaria Ceramics Ltd. | 2.4 | 2.7 | 2.7 | 2.5 | 2.6 |
| Hindustan Unilever Ltd. | - | 1.3 | 1.3 | 1.6 | 2.5 |
Top 10 holdings (in %) on December 31, 2011
(Source: ACE MF, PersonalFN Research)
As indicated by the table above, DBTSF’s top-10 holdings largely constitutes of all ‘A’ group stocks. As on December 31, 2011 the fund held in all 71 stocks in its portfolio, of which ‘A’ group stocks accounted for 72% and the rest 28% were the ‘B’ group ones. The top-10 stocks comprised of 36.8% of the last portfolio, while top-5 sector concentration stood at 46.1%. So the far the portfolio churning ratio of 0.88 times, reveals that the fund manager has refrained from churning aggressively while maintaining a large cap dominant equity portfolio, thus reflecting a “buy and hold” strategy.
DBTSF follows the S&P CNX 500 as its benchmark, and undertakes a bottom-up approach to stock picking while building its portfolio, and has consideration to following quantitative criteria amongst others:
- Price-to-earnings ratio
- Price-to-book value ratio
- Price-to-sales ratio
- Asset turnover ratio
- Improving margins
- Cash flows
- Capital structure
Moreover, DBTSF follows a combination of both value and growth, style of investing (also known as blend style) while managing its portfolio, and pays attention to the following broader qualitative aspects (to build its portfolio) amongst others:
- Price-to-earnings ratio
- Policy environment
- Business prospects
- Responsive to business conditions
- Strength of management
- Product profile and brand equity
- Competitive edge
- Research & technological know-how
- Corporate governance
How DBTSF has fared vis-à-vis its peers
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
|---|---|---|---|---|---|---|
| Sahara Tax Gain(G) | -9.1 | -7.1 | 29.8 | 10.1 | 7.73 | 0.20 |
| Religare Tax Plan(G) | -10.4 | -5.2 | 29.4 | 9.9 | 6.57 | 0.23 |
| Reliance Tax Saver (ELSS)(G) | -11.3 | -5.9 | 28.3 | 4.98 | 7.31 | 0.18 |
| DSPBR Tax Saver(G) | -13.1 | -14.0 | 26.2 | 7.4 | 7.26 | 0.17 |
| Kotak Tax Saver(G) | -11.2 | -11.0 | 24.2 | 2.2 | 7.70 | 0.14 |
| IDFC Tax Advt(G) | -10.5 | -10.6 | 21.9 | - | 6.60 | 0.17 |
| S&P CNX 500 | -11.5 | -11.7 | 25.0 | 3.4 | 8.05 | 0.14 |
(NAV data is as on January 25, 2012. Standard Deviation and Sharpe ratio is calculated over a 3-Yr period.
Risk-free rate is assumed to be 6.37%)
(Source: ACE MF, PersonalFN Research)
The table above reveals that the blend style and “buy and hold” strategy followed by DBTSF (while building its portfolio), has helped in generating luring returns for its investors. Over a 3-Yr time frame the fund has clocked quite appealing returns of 26.2% CAGR, as against the 25.0% CAGR generated by it benchmark - S&P CNX 500 over the same time frame.
Even when assessed on the volatility front, DBTSF has exposed its investor to low risk (as revealed by its Standard Deviation of 7.26%), and thus has been able to clocking appealing risk-adjusted returns (as revealed by its Sharpe Ratio of 0.17) which are high than risk-adjusted ratio clocked by its benchmark – S&P CNX 500. However, a noteworthy point is that, compared to the risk-adjusted returns clocked by the top performers in the category, the Sharpe Ratio appears quite ordinary. This, thus, makes DBTSF a low risk- medium return investment proposition as compared to its peers.
Fund Manager Profile
| Name of the Fund Manager | Mr. Anup Maheshwari |
| Total Work Experience | Over 17 years |
| Managing the fund since | Nov-06 |
| Qualifications | B.Com, PGDM |
(Source: SID, PersonalFN Research)
In a nutshell...
Since the performance displayed by the DBTSF is appealing and backed by prudent investment processes and systems, we recommend that existing investors having exposure to DSP BlackRock Tax Saver Fund can continue to hold onto their investments. But if one wants to invest fresh money to avail the tax benefits (as offered by ELSS), one would be better-off investing in a fund that generates higher risk adjusted returns.
ELSS mutual funds can provide you with an excellent wealth creation avenue, apart from helping you avail the tax deductions. However, the investment in ELSS doesn’t come without risk and hence requires your attention at the time of selecting a fund. Investment done without proper assessment may prove to be a blunder if your selection goes wrong. Thorough research of available options may help you take a well informed decision.
There are no comments yet