Tata India Tax Savings: Right blend of risk and return

The fund is among the top quartile performers in its category

Equity-linked savings schemes are good tax-saving instruments if you haven’t exhausted the Sec 80C limit yet. Lumpsum investments in these schemes are locked in for three years. With the end of the financial year fast approaching, investors with an appetite for risk can consider Tata India Tax Savings. Over a five-year period, the fund has recorded 17.7 per cent returns and is among the top quartile performers in this category.

While the fund per se has a track record of more than 20 years, the growth option was not available until end-2014. Investors should note that after the imposition of long-term capital gains tax on equities on gains above ₹1 lakh, choosing the growth option makes sense in any fund, as dividends are taxed at the same 10 per cent, every time they are paid out.

Though the fund is benchmarked to the bellwether Sensex TRI, it acts as a multi-cap fund, deftly juggling among large-, mid- and small-caps according to market conditions.

Over longer time-frames of three and five years, the fund’s returns are on a par with or better than the broader BSE 500 Index or the category average returns of ELSS funds.

The fund is also a consistent outperformer as, on a three-year rolling return basis over the last five years, it tops the charts. Tata Tax Savings cashes in on rallies, by taking higher exposure to mid- and small-cap stocks. In the 2017 rally, for instance, the fund’s mid- and small-cap holdings soared to over 40 per cent of its portfolio.

However, the fund is quick to turn defensive when the markets turn choppy. It takes cover from a fall by allocating less to equities, increasing large-cap stocks in the portfolio and upping its holdings in defensive sectors such as consumer non-durables. While the fund held 95-98 per cent in equities in 2017, this allocation came down to 90-95 per cent in the volatile markets of 2018. Mid- and small-cap holdings too were gradually slashed to around 25 per cent by the end of 2018.

 

 

 

Portfolio choices

The fund usually has a diversified portfolio of about 50 stocks. It tends to take a concentrated holding of 7-9 per cent in the top two to three stocks. Given that the markets remain choppy, the fund continues to take a cautious stance in 2019. In its latest portfolio, as of January 2019, it holds only about 27 per cent in mid- and small-cap stocks.

Banking and consumer non-durables are the top sectors for the fund now. Holdings in the latter have moved up from 3.2 per cent a year ago to 11. 8 per cent now.

While the fund has always held 1-2 per cent in ITC, it added Dabur, Hindustan Unilever and Nestle during the year. It also more than doubled its exposure to banking stocks last year. The fund predominantly holds private banks such as Axis, HDFC and Kotak. Its software holdings were rightly increased in the second half of the year as prospects improved .

Consistent holdings in stocks such as Bajaj Finance, Reliance Industries and Hindustan Unilever have worked well for the fund over the last three years. MRF, Bata, Mahindra CIE, NCC and Jubilant Foodworks are some of the prominent mid-caps in the portfolio now.

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