IDFC Tax Advantage Fund
An Equity Linked Savings Scheme (ELSS) provides a dual benefit of tax saving combined with potential returns from investments in equity and equity related instruments. ELSS funds have a compulsory lock-in period of 3 years which prevents investors from withdrawing money prematurely without realising the full benefits of equity investments. It also gives the fund manager freedom to invest taking a long term view on stocks without worrying much about the redemption pressure.
IDFC Tax Advantage Fund (ITAF) is one such open-ended tax saving fund from the stable of IDFC Mutual Fund, which follows a growth style of investing. ITAF is primarily mandated to invest in equities and equity-related securities of Indian companies along with debt and money market instruments. Launched in December 2008, the fund has been in existence for a little over 3 years now.
Investment Objective and Proposition
The fund’s primary investment objective is “to seek to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities. There can be no assurance that the investment objective of the scheme will be realized.”
The fund is mandated to invest 80% - 100% of its total assets in equity and equity-related securities and the rest (upto 20%) in domestic debt and money market instruments (including securitized debt) to manage its liquidity requirements.
Over the past one year, ITAF’s exposure to large cap stocks has been in the range of 52% - 71%, while its exposure to mid & small cap stocks has ranged from of 22% - 41%. The fund’s exposure to debt and cash over the past one year has not been more than 16% which thus indicates its tilt towards staying invested in equities with occasional cash calls. As per the portfolio disclosed on December 30, 2011, fund has allocated 63.5% to large caps while its investment in mid & small caps stands at 32.9% and exposure to cash has been petite 3.6%.
Equity Portfolio
| Holdings | Aug 2011 | Sep 2011 | Oct 2011 | Nov 2011 | Dec 2011 |
|---|---|---|---|---|---|
| Infosys Ltd. | 3.8 | 5.0 | 6.3 | 6.3 | 7.0 |
| Hindustan Petroleum Corporation Ltd. | - | - | - | 5.6 | 5.6 |
| ICICI Bank Ltd. | 5.6 | 5.5 | 5.5 | 5.7 | 5.8 |
| Lupin Ltd. | 3.6 | 3.7 | 3.5 | 3.8 | 4.5 |
| State Bank Of India | 4.0 | 4.1 | 4.2 | 4.3 | 4.1 |
| HCL Technologies Ltd. | 4.1 | 3.2 | 3.3 | 3.1 | 4.1 |
| GAIL (India) Ltd. | 2.5 | 3.2 | 3.1 | 3.9 | 4.1 |
| Tata Consultancy Services Ltd. | 5.0 | 4.1 | 4.1 | 4.5 | 3.9 |
| Eros International Media Ltd. | 3.9 | 4.2 | 4.2 | 4.1 | 3.9 |
| HDFC Bank Ltd. | - | - | 1.8 | 2.7 | 3.6 |
Top 10 holdings (in %) on December 31, 2011
(Source: ACE MF, PersonalFN Research)
As indicated by the table above, ITAF’s Top-10 equity portfolio largely constitutes of ‘A’ group stocks. As on December 30, 2011 the fund held in all 31 stocks in portfolio out of which ‘A’ group stocks accounted for 74.2% and the rest 25.8% were the ‘B’ group ones. Top-10 stocks comprise 47.4% of the portfolio while top-5 sector concentration stands at 50.4%.
ITAF is benchmarked against BSE-200. It holds a fairly concentrated portfolio of equities without any bias towards any specific market cap segment. Fund largely follows the multi cap strategy where the fund manager tries to keep the exposure to various market cap segments in a specified range. The fund manager has a tendency to churn the portfolio moderately which is revealed by the portfolio turnover ratio of 1.23 times.
ITAF endeavours to invest in well-managed growth companies that are available at reasonable value. Future, profitability and sustainability of cash profit growth are among the other factors that will be considered important while identifying the investment opportunities.
How ITAF has fared vis-à-vis its peers
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
|---|---|---|---|---|---|---|
| HDFC TaxSaver(G) | -7.1 | -4.7 | 32.7 | 7.5 | 7.09 | 0.26 |
| ING Tax Savings(G) | -8.2 | -5.5 | 30.8 | -0.7 | 7.91 | 0.22 |
| Religare Tax Plan(G) | -7.1 | 1.1 | 29.3 | 10.3 | 6.57 | 0.24 |
| Reliance Tax Saver (ELSS)(G) | -4.9 | 0.5 | 28.6 | 5.4 | 7.38 | 0.20 |
| DSPBR Tax Saver(G) | -7.0 | -6.5 | 26.6 | 8.1 | 7.27 | 0.19 |
| IDFC Tax Advt(G) | -4.2 | -4.1 | 23.5 | - | 6.65 | 0.18 |
| BSE-200 | -5.0 | -4.9 | 25.8 | 4.3 | 8.18 | 0.16 |
(NAV data is as on February 02, 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 ITAF’s performance has not been very luring when compared to top performers in the category. Moreover, the fund has failed to outperform its benchmark index – BSE-200 over last 3 years. It has clocked returns of 23.5% CAGR over the 3-Yr as against the 25.8% CAGR returns generated by BSE-200 over the same time frame.
When assessed on the volatility front, ITAF has exposed its investor to lower risk (as revealed by its Standard Deviation of 6.65%), but has been partially successful in clocking appealing risk-adjusted returns (as revealed by its Sharpe Ratio of 0.18; which higher than the Sharpe ratio of 0.16 clocked by its benchmark). However the Sharpe ratio of ITAF looks average when compared with some of the top performers in the category. This makes it a low risk- low return investment proposition as compared to its peers.
Fund Manager Profile
| Name of the Fund Manager | Neelotpal Sahai |
| Total Work Experience | Over 19 years |
| Managing the fund since | Sep-10 |
| Qualifications | B.Tech , PGDM (IIM-C) |
In a nutshell...
As seen above the performance of IDFC Tax Advantage Fund has been average. Over a 3-Yr time frame, the returns are mediocre. It is noteworthy that the fund was launched during the bear phase of the market cycle and has yet to establish a track record during the bearish market phases. Despite having the advantage of picking up stocks at cheaper valuation during its initial days; fund has failed to match the returns of its benchmark over last 3 years.
As seen above the performance of IDFC Tax Advantage Fund has been average. Over a 3-Yr time frame, the returns are mediocre. It is noteworthy that the fund was launched during the bear phase of the market cycle and has yet to establish a track record during the bearish market phases. Despite having the advantage of picking up stocks at cheaper valuation during its initial days; fund has failed to match the returns of its benchmark over last 3 years.
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