Mutual Funds

Canara Robeco Equity Tax Saver: A less ‘taxing’ option for long-term goals - Buy

Yoganand D | Updated on December 30, 2018 Published on December 30, 2018

The scheme has marginally outperformed its benchmark over the past five and seven years

Investors looking for tax-saving options can consider equity-linked savings schemes (ELSS). These schemes help investors reduce ₹1.5 lakh from taxable income under Section 80C.

ELSS funds invest in equity and equity-related securities with a statutory lock-in of three years. Investors with a long-term investment horizon can buy units of Canara Robeco Equity Tax Saver, which has been resilient over the past year and delivered a positive return of 1.8 per cent, while the category, on an average, declined 7 per cent.

Over the past three-year period, though the fund has given 10.38 per cent returns, marginally underperforming its benchmark index — S&P BSE 100 TRI — positive returns in the past one-year period have compensated for that.

The fund is well-positioned to cap downsides. For instance, both in the 2008 and 2011 market down-cycles, it limited the downside risk better than the benchmark and the category. This year, too, it has capped the downside well. Investors searching for a defensive fund with stable returns along with tax-saving benefits can bet on the fund.

Over the past five and seven years, the fund has marginally outperformed its benchmark by delivering 14.4 per cent and 14.9 per cent, respectively. The scheme has outshone peers such as ABSL Tax Relief ’96 and Principal Tax Savings by a big margin over the past one-year period.

Portfolio and strategy

Canara Robeco Equity Tax Saver invests 94-97 per cent in equity and the balance in debt or cash equivalent.

Banking is the most preferred sector; a majority of the assets — over 31 per cent — is allocated to the sector.

The fund mainly invests in private sector banks, but it added SBI in August and subsequently upped the allocation.

Software is the second-most preferred sector; it regained the position after a long gap. Key stocks, namely Infosys and TCS, have delivered good returns in the short duration, and the fund has upped its allocation to these stocks.

In March, the scheme began to invest in consumer durables and has since then substantially increased the allocation to 10.7 per cent. Stocks such as VIP Industries and Bata India have given good returns. On the other hand, the fund has trimmed its allocation to pharma and exited stocks in automobiles, retailing and textile products, while investing in cement and industrial products.

Despite a higher allocation to banks, the fund is overall underweight on the sector compared with its benchmark. It is also underweight on software, FMCG, energy and automobile. It is overweight on engineering, construction, chemicals and consumer durables. This sector allocation seems to be one of the reasons for the scheme’s outperformance.

It has about 38 stocks in the portfolio, predominately large-cap, growth-oriented stocks. The fund also holds some mid-cap stocks.

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