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Principal Tax Saving Fund: Consistent Performer
Wed, Nov 23, 2016
Source : Yash Jashnani, Citrus Interactive

Principal Tax Saving Fund is an open ended equity linked savings scheme (ELSS). ELSS is a type of mutual fund which has a 3-year lock in period and provides tax benefit up to Rs 1.5 lakh under Section 80C. The primary objective of the scheme is to build a high quality growth oriented portfolio to provide long term capital appreciation through investment primarily in equities.

 

The fund has an AUM of Rs 294 crore as on 31st October 2016 which has increased by Rs 33 crore compared to last year 31st October 2015.

 

Performance

The fund’s performance across various time horizons is extremely good as seen in the table given below. It has beaten its benchmark in all the time periods. It has done better than the ELSS category in all the time periods.

 

Scheme Name

YTD

6 Months

1 Year

3 Years

5 Years

Since Inception

Principal Tax Saving Fund

16.72

21.82

16.7

25.36

19.7

16.89

 S&P BSE 200

11.16

13.07

9.01

15.83

11.64

12.2

Category Average

13.34

16.3

12.91

23.51

16.42

NA

Rank

9/39

5/40

7/37

11/34

4/32

NA

Figures are in % as on 31st October 2016; Returns above 1 year in Compounded Annual Growth Rate (CAGR)

 

In terms of the calendar year returns the fund has beaten the benchmark and ELSS Category in all the last 5 calendar years except 2011.

 

Scheme Name

2011

2012

2013

2014

2015

Principal Tax Saving Fund

-30.38

46.51

8.55

49.45

2.7

 S&P BSE 200

-26.95

30.98

4.38

35.47

-1.48

Category Average

-24.04

32.01

6.41

50.79

3.53

Rank

30/32

1/33

12/33

17/34

21/35

All figures in %

 

Risk: In terms of measures of risk such as standard deviation and Beta (measured over the last 3 years), the fund has taken higher risk.

 

Standard Deviation

Beta

Principal Tax Saving Fund

1.08

1.05

Category Median

0.91

0.91

 

 

Risk-Adjusted Return: In terms of Treynor and Sharpe ratio (measured over the last 3 years), the fund has proved higher lower-adjusted returns than the category median.

 

 

Treynor

Sharpe

Principal Tax Saving Fund

0.08

0.08

Category Median

0.09

0.09

 

Portfolio

Sector concentration: The fund’s concentration in the Top 3, Top 5 and Top 10 sectors is lower than the category median.

 

 

Top 3

Top 5

Top 10

Principal Tax Saving Fund

30.55

42.22

62.67

Category Median

32.88

44.37

64.35

 

 

Company concentration: The Fund’s Concentration in the Top 3, Top 5 and Top 10 Companies is lower than the category median.

 

 

Top 3

Top 5

Top 10

Principal Tax Saving Fund

13.13

20.04

33.33

Category Median

16.53

24.92

41.31

Sector and Company Concentration signifies that the funds maintain a fairly diversified portfolio.

Number of Equity Holdings: The Fund currently holds 63 stocks in its portfolio (28th October 2016), which is higher than the median stock count of the ELSS category, which currently stands at 50. In the last 5 years the equity holding averages to 58.

Cash Equivalent:        

Its cash equivalent for October was 4.33 per cent. The average cash allocation for the last five years is 4.01 per cent. Its maximum allocation to cash over the last two years is 7.43 percent in November 2014 and lowest was -0.01 percent in March 2016. In 2016 it had an average cash allocation of 3.62 per cent in 2016.

Portfolio Characteristics:

The Top 5 sectors include Bank-Private, Cement & Construction, IT-Software, Bank – Public, Engineering – Construction & IT – software

Currently 73% of the portfolio is invested in cyclical stocks, 15% in defensive stocks and 8% in service stocks.

In the last 6 months the fund has bought Birla Coporation Ltd., Canara Bank, Castrol India Ltd, Cox & Kings (India) Ltd., Dabur India Ltd., Cipla Ltd., RBL Bank Ltd., Union Bank of India & Yes bank Ltd.

Stocks of Escorts Ltd., Firstsource Solutions Ltd.., Gateway Distriparks Ltd., JSW Steel Ltd.., L&T Finance Holdings Ltd.., Rural Electrification Corporation Ltd., SRF Ltd., Tata Communications Ltd., Tata Steel Ltd. The Ramco Cements Ltd.

Stocks of Arvind ltd. & Shriram Transport Finance Company Ltd. have been bought & sold.

 

Process

The scheme will invest its assets in a portfolio of equity and equity related instruments. The focus of the investment strategy would be to identify stocks which can provide capital appreciation in the long term. The aim will be to build a diversified portfolio across major industries and economic sectors by using fundamental analysis as its selection process.

The three basic steps of fundamental analysis are: Research, Valuation and Securities selection.

The scheme would invest its assets, not less than 80%, in Equity & Equity linked instruments. The scheme would also invest upto 20% of its assets into Debt Securities (which would also include Securitized Debt) & Money Market Instruments.

The investment in Securitized Debt may be upto 20% of its net assets. The may also invest 50% of its net assets into Derivatives.

There is separate team for investment in fixed income instruments & equities. The team works under the supervision of Chief Investment Officer (CIO). CIO is overall in charge for the Fund's investment.

 

Fund Manager

Mr. P. V. K. Mohan is the Head of Equity at Principal Mutual Funds. Previously, he served as the Senior Fund Manager of Equity at the firm. In his new role, he focuses on Principal Mutual Fund's investment process targeting delivery of consistent returns in equity funds and leading the team of analysts towards the goal. He has around 17 years of experience in equity research and fund management.

The other funds managed by him are Principal Growth Fund & Principal Balanced Fund.

Previously he has worked with IL&FS and IL&FS Mutual Fund, DSP Blackrock Investment Managers and ICICI Prudential Asset Management Company.

He holds a degree in B.Tech and also a PGDM.

 

Our View

Principal Tax Saving Fund has shown high consistency in terms of beating the benchmark as well as the ELSS category. The fund manager also has a good track record. The portfolio is well diversified. The fund can be considered for your Section 80C investments provided you are comfortable with the money getting locked for 3 years.

 

 
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