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Reliance Tax Saver (ELSS) Fund: Aggressive outperformer.
Wed, Jan 27, 2016
Source : Khyati Shah, Citrus Interactive

Reliance Tax Saver (ELSS) Fund is an open-end equity-linked savings scheme (ELSS) fund with 3 year compulsory lock-in. The fund offers investors tax benefits under Section 80C. The investment objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. The fund was launched in September 2005 and is benchmarked against the S&P BSE 100 Index. The fund has an AUM of Rs. 4,605 crore as on December 31, 2015 which has gone up by 809 crore as compared to the last year December 31, 2014 (3,796 crore). This is the 4th largest ELSS fund in the industry.

Performance

Reliance Tax Saver (ELSS) Fund is one of the best performing funds in its category. It has a good performance track record of consistently outperforming its benchmark index across all time frames as shown from the table given below. Its performance since inception has been better than its benchmark by over 4.22 percentage points. The fund has beaten the equity-linked savings scheme category average in all time frames except in the last 1 year where it has underperformed. The fund has been top ranking fund in 2 years’ time frame while it ranked 4th and 2nd in 3 and 5 years respectively. It has actually been in the top 5 funds in the category of its peer-set across all time frames except one.

Scheme Name

1 Year

2 Years

3 Years

5 Years

Since Inception

Reliance Tax Saver (ELSS) Fund

-2.92

33.28

22.5

15.25

15.84

S&P BSE 100 Index

-3.25

13.13

10.66

5.51

11.62

Category Average

3.5

24.55

18.01

10.53

NA

Rank

34/36

1/35

4/34

2/33

NA

Figures are in % as on December 31, 2015; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

When we look at the calendar year returns it’s quite clear that Reliance Tax Saver (ELSS) Fund has beaten its benchmark and category average in four out of the last five calendar years. In the year 2011, 2013 and 2015 it has underperformed its category average. The fund has been top ranking fund in the year 2014 whereas it ranked second in the year 2012. In the year 2011 and 2013 it was in third quartile of its peer-set.

Scheme Name

2011

2012

2013

2014

2015

Reliance Tax Saver (ELSS) Fund

-24.23

45.05

3.47

83

-2.92

S&P BSE 100 Index

-25.73

29.96

5.87

32.28

-3.25

Category Average

-23.77

31.86

6.4

50.36

3.5

Rank

21/32

2/33

26/33

1/34

34/36

All figures in %

Risk: In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has taken higher risk compared to the category median.

 

Standard Deviation

Beta

Reliance Tax Saver (ELSS) Fund

1.1

0.93

Category Median

0.93

0.9

Risk-adjusted Returns: In terms Treynor (measured over last three years), the fund has provided higher risk-adjusted returns than the category median whereas it has provided same risk-adjusted returns as the category median in terms of Sharpe ratio.

 

Treynor

Sharpe

Reliance Tax Saver (ELSS) Fund

0.08

0.07

Category Median

0.06

0.07

 

Portfolio Characteristics

Sector Concentration:  The fund’s concentration in the top 3, 5 and 10 sectors is lower than the category median highlighting lower risk of the fund.

 

Top 3

Top 5

Top 10

Reliance Tax Saver (ELSS) Fund

25.74

39.69

61.75

Category Median

35.94

47.76

67.87

 

Company Concentration: The concentration of funds in top 3 and 5 companies in its portfolio is slightly higher than the category median highlighting higher risk of the fund whereas the concentration of funds in top 10 companies in its portfolio is lower than the category median.

 

Top 3

Top 5

Top 10

Reliance Tax Saver (ELSS) Fund

18.31

26.57

41.77

Category Median

17.23

25.93

42.71

 

Number of equity holdings: The fund currently holds 55 stocks in its portfolio (December 31, 2015), which is higher than the median stock count for the equity-linked savings scheme category, which currently stands at 49. The fund has held a well-diversified portfolio at the stock level compared to the category. Over the past five years the fund has always had a diversified portfolio with the number of equity holdings over this period averaging 45.

Cash allocation: Its cash allocation at the end of November 2015 was 0.70 per cent which is much lower than the median cash allocation for the equity-linked savings scheme category, which currently stands at 3.27 per cent. The average cash allocation for last five years is 0.97 per cent. Its maximum allocation to cash over last two years was 2.18 per cent in October 2015 and lowest was -0.97 per cent in March 2014. In 2015 it had an average cash allocation of 0.96 per cent. Thus overall the fund maintains low allocation to cash.

Portfolio insights: The top 5 sectors in the portfolio had an allocation of 39.69% which is lower than the category average of 49.83%. The top 5 sector include Automobile Two & Three Wheelers, Electric Equipment, Bank - Private, Bank - Public and Auto Ancillary.

The fund’s exposure to cyclical stocks currently is 76.64% followed by Defensives with 13.07% and Services with 8.57%. The Top five holding are TVS Motor Company Ltd., State Bank Of India, ITC Ltd., ICICI Bank Ltd. and Honeywell Automation India Ltd.

In the last six months the fund has bought stocks of Sun Pharmaceutical Industries Ltd., Petronet LNG Ltd., Indian Oil Corporation Ltd., Infosys Ltd., HCL Technologies Ltd., Cipla Ltd., Bank Of Baroda , ITC Ltd. and GIC Housing Finance Ltd.

The stocks of Tata Motors Ltd., Crompton Greaves Ltd., ACC Ltd., SML Isuzu Ltd., Max India Ltd., Alstom India Ltd. and Anant Raj Ltd. have been dropped from the portfolio.

The fund has also balanced the exposure between large and mid caps. There are 36 stocks in the portfolio with a combined weight of 70% with a market cap larger than Rs 10,000 crs and 19 stocks with a combined weight of about 30% with a market cap ranging from Rs 900 crs to Rs 10,000 crs.

One can conclude that the fund has a well-diversified portfolio based on criteria such as equity count, sector concentration and company concentration.

 

Process

At least 80 % of the corpus has to be invested in equities, cumulative convertible preference shares and fully convertible debentures and bonds of companies. Investment may also be made in partly convertible issues of debentures and bonds including those issued on rights basis subject to the condition that, as far as possible, the non- convertible portion of the debentures so acquired or subscribed, shall be disinvested within a period of 12 months.

Pending investment of funds of a plan in the required manner, the Fund may invest the funds in short-term money market instruments or other liquid instruments or both. After three years of the date of allotment of the units, the Fund may hold upto 20% of net assets of the plan in short-term money market instruments and other liquid instruments to enable them to redeem investment of those unit holders who would seek to tender the units for repurchase.

With the aim of controlling risks, rigorous in depth credit evaluation of the securities proposed to be invested in will be carried out by the investment team of the AMC.

The Scheme may also use various derivatives and hedging products from time to time, as would be available and permitted by RBI, in an attempt to protect the value of the portfolio and enhance Unitholders’ interest.

The fund managers will follow an active investment strategy taking defensive / aggressive postures depending on opportunities available at various points of time.

The fund holds a mix of large and mid cap stocks. There is a significant exposure to high conviction mid cap companies (currently 33%). The philosophy is to invest in companies with high growth potential over medium term (2-3 years). Generally, the fund has two or three sector calls at a time. They are mostly in-line of emerging market trends. A small percentage of the portfolio is invested in contrarian calls.

The fund’s expense ratio is 1.75% which is much lower than the category average of 2.41%. Since the fund is an equity-linked savings scheme (ELSS) fund it comes with a three year compulsory lock in period and nil exit load. Minimum investment in the fund is Rs 500.

 

Fund Manager

The fund is managed Ashwani Kumar who is the Senior Fund Manager – Equity Investments at Reliance AMC. Mr. Ashwani Kumar has an over 19 Years of experience in Equity Research and more than 5 Years of experience in Managing Equity Portfolio and Fund Management. Mr. Ashwani Kumar is B.Sc. and has completed his MBA in Finance.

Prior to this, he worked with Zurich Asset Management Co. India P. Ltd. where he was the Senior Research Analyst, responsible for tracking automotive, metals, and engineering sectors. Other funds managed by Ashwani Kumar are Reliance Vision Fund and Reliance Top 200 Fund.

 

View

Reliance Tax Saver fund has established itself as one the best ELSS funds in the last few years. It tends to do really well in bullish markets but underperforms its peers in bearish phases (as seen in the last 1 year). It has delivered strong outperformance and has created wealth for its investors. It has been one of the best ELSS performers in the last three years. A strong fund management team, excellent returns given in past 2, 3 and 5 years and low expense ratio makes it favorable choice for the ELSS allocation in your portfolio. The performance of the fund has suffered due to its exposure to PSU Bank stocks such as SBI, Canara, OBC which have fallen between 58% to 28% in 2015. The private sector banks such as Federal Bank and ICICI have delivered a negative performance of about 26% last year. These sectors also carry the scope of outperforming in a rebounding market.

This fund is advisable for investors who are seeking exposure to equity space as well as who want to take advantage of the tax benefit availed under Section 80C of Income Tax Act, 1961.

 

To read the previous Citrus Analysis of Reliance Tax Saver fund Click here
 
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