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For investors willing to take higher risk for higher returns, equity-linked savings schemes (ELSS) are a good option to save taxes under Section 80C. Investment of up to ₹1.5 lakh in these funds during a financial year qualifies for Section 80C deduction, and will be subject to a lock-in of three years.
With a solid track record of outperformance over its benchmark, Aditya Birla Sun Life (ABSL) Tax Relief 96 fits the bill. After market regulator SEBI’s recent classification norms for mutual funds, the fund house merged ABSL Tax Savings with this fund, effective May 21, 2018.
However, this does not alter the case for investment in Tax Relief 96, as the former’s asset size was only ₹27 crore at the time of merger. ABSL Tax Relief 96 is a much bigger fund, with an asset size of over ₹6,000 crore. Ajay Garg, who has been managing Tax Relief 96 since October 2006, continues to be the fund manager after the merger.
Performance and strategy
ABSL Tax Relief 96 has outshined its benchmark, S&P BSE 200 TRI, across one-, three- and five-year time-frames by 1-6 percentage points. Over longer terms of three and five years, the fund has surpassed the performance of peer tax-saving funds such as ICICI Prudential Long Term Equity, HDFC Tax Saver and Franklin India Tax Shield.
The fund has proved its mettle in bull market conditions, returning higher than both the benchmark and the category average in rally years such as 2012, 2014 and 2017. It has managed to keep its head above water at other times when the market lacked direction.
The fund does not take cash/debt calls. It always holds equity allocations at over 95 per cent. Besides, it also has a penchant for mid-/small-cap stocks and follows a multi-cap approach to stock-picking.
The fund typically holds 40-50 stocks in its portfolio and tends to take 5-9 per cent exposure in its top holdings.
Astute stock and sector choices help the fund emerge on top. For instance, the fund rightly pared holdings in the defensive pharma space in 2014, when the markets had heated up. It instead stocked up on cyclicals such as banking, auto and capital goods and benefited from the rally. Upping stakes at the right time in multi-baggers, such as Sundaram Clayton and Gillette India, since the 2014 rally has also helped. In the past few years, the fund has also consistently held about 5 per cent stake in other multi-baggers such as Honeywell Automation.
Current portfolio
The fund presently holds 97 per cent in equities. Even as mid- and small-cap stocks have been in correction mode in recent times, the fund has held on to stocks in this space. In its latest portfolio, it holds about 23 per cent in mid-caps. A lock-in of three years for the investment will help recoup if the correction continues.
On the other hand, if mid-caps start finding favour once again, the fund is well-placed to cash in on it, given its sizeable holdings. To balance out this aggressiveness, the fund has presently adopted a defensive approach in its sector choices.
Its top sectors are pharma and consumer non-durables, where it holds 13 and 10 per cent, respectively.
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