19 January 2015

Canara Robeco Equity Tax Saver: Buy :: Business Line

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You could park small lumpsums in the fund for low-risk returns and tax savings
Those looking for a relatively low-risk, equity-linked, savings fund to cut down on taxes could invest in Canara Robeco Equity Tax Saver.
While the fund’s one-year return of 48 per cent is lacklustre when compared with the 60 per cent plus returns of category toppers, it is a good performer over the long term.
Funds such as Escorts Tax Plan and JM Tax Gain have managed stellar returns in the recent market cycle, but have faltered over the three or five-year periods. Canara Robeco’s ELSS fund ranks in the top quartile of funds in its category in the five-year timeframe. On an annual rolling return basis over the past five years, the fund has beaten its benchmark BSE 100 78 per cent of the time.
While systematic investments can be used in ELSS funds, note that each instalment is locked in for three years.
Safety first
Across timeframes, the fund has beaten the BSE 100 by a margin of 4 to 12 percentage points. Canara Robeco Tax Saver invests mostly in large-cap stocks; it, therefore, fails to match up to peers such as Axis Long Term Equity or Reliance Tax Saver which invest in a larger basket of stocks, during rallies driven by mid-cap stocks.
This apart, the fund’s strategy of switching to cash and debt when markets appear shaky has limited its returns. For instance, in 2012, which saw mid-cap valuations soar ahead of bluechips before subsequently crashing, the fund averaged a 94 per cent equity holding for most of the year. Returns for 2012 were on par with that of the benchmark; better-performing peer Axis Long Term Equity moved above 95 per cent in equity exposure early in the year. Similarly, from 97 per cent of the Tax Saver fund’s portfolio being in equities in May 2013, it dropped to 91 per cent by August, the market low.
Barring the 2012 period, Canara Robeco Tax Saver has ranked in the top quartile of funds in its category across market cycles.
The fund also takes valuation calls, which means that it may exit rallying names that trade at a premium. For example, it exited stocks such as Mahindra & Mahindra, Colgate Palmolive, Ashoka Buildcon, HCL Technologies and Sundaram Finance. It pulled out of most FMCG stocks by mid-2013, retaining only ITC.
In the recent market cycle, the Tax Saver Fund’s largest addition has been banking, from which it has gained well.
In a departure from several equity funds, exposure to automobiles was cut sharply. Infrastructure, logistics and cement were added instead. The fund has maintained a 6-8 per cent holding in pharmaceutical stocks for the past few years which, together with software, provide the defensive tilt.

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