Mutual Funds

HDFC TaxSaver: Invest

Suresh Parthasarathy | Updated on November 15, 2017 Published on January 14, 2012


Investors looking for tax-saving equity options may invest in HDFC TaxSaver, if they have not exhausted their Section 80C tax deductions. The fund is among the few ELSS with an exemplary 10-year record. With a three-year compounded annual return of 27 per cent, it beat the category average of diversified equity funds by 5 percentage points. Over a five-year period, it clocked compounded annualised return of 5.6 per cent and bettered its benchmark CNX 500 by 2.6 percentage points.

Given its Rs 22,000-crore average marketcap, the fund may be more comparable to a large-cap index such as Nifty. Such a comparison also shows that the fund has consistently beaten Nifty. In recent years, though, the fund's performance slipped below the top performing Canara Robeco Equity Tax Saver. Investors who already hold the latter can go for HDFC TaxSaver as a diversifier.

Strategy

Many tax saving funds have taken a deep cut in their NAV during bear markets, thanks to their mid-cap focus. HDFC TaxSaver, though, has learnt from past lessons and has increased its large-cap exposure. Investors can go for a dividend payout option. HDFC TaxSaver has consistently paid dividends every year in the last five years. Any implementation of the Direct Taxes Code in its present state may deny the 80C benefit for ELSS schemes. Investors may, therefore, refrain from a dividend reinvestment option.

Performance: HDFC Tax Saver NAV corrected by 15 per cent in the past year, but bettered its broader benchmark CNX 500 by 3 percentage points. But the fund lost more than peers such as Fidelity Tax Advantage. The fund's delay in increasing its exposure to the rallying consumer non-durables sector could partially explain the underperformance. It also holds more mid-cap stocks when compared with Fidelity or Canara Robeco's tax-saving schemes, which have a clear large-cap focus.

Portfolio Overview: The fund holds 38 per cent of its assets in its top ten stocks. The fund's lower turnover implies that it adopts a buy and hold strategy. Its three-year lock-in allows it to wait it out. Although the fund gradually reduced its exposure to underperforming capital goods in the past year it continues to allocate 6 per cent of the assets to the sector. The fund is managed by Mr Vinay Kulkarni.





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