Fund houses have done their bit to cash in on the tax-planning season by launching a number of tax-saving funds (also referred to as equity linked savings schemes). The latest entrant in this category is DSP ML Tax Saver Fund (DMTSF).
Investing for the purpose of tax-saving is no different from investing in the normal course i.e. investing in line with one's risk appetite and holding a well-diversified portfolio, are equally relevant. Tax-saving funds offer risk-taking investors the opportunity to invest in line with their risk profile while conducting the tax-planning exercise. What sets tax-saving funds apart from conventional diversified equity funds is the 3-Yr lock-in period.
The 3-Yr lock-in ensures that investors are invested for a longer time frame, thereby instilling a degree of discipline in the investment process. Studies have proven that equities, as an asset class, are best equipped to deliver over longer time frames. The lock-in also aids the fund manager; he can take a long-term view while investing and be indifferent to short-term market fluctuations.
DSP ML Mutual Fund has in its arsenal a number of well-managed equity funds like DSP ML Equity Fund, DSP ML Top 100 Fund and DSP ML Opportunities Fund, among others. These funds have impressive track records to show for and have consistently featured among top-performers in their respective segments. Also, DSP ML Mutual Fund is among the few fund houses which didn't succumb to the temptation of launching new fund offers (NFOs) to capitalise on rising markets; each of its offerings has a truly unique investment proposition on offer for investors.
In our view, the fund house adopts a process-driven investment approach. The same held it in good stead, when a churn took place in its fund management team. We believe that DMTSF will benefit from the same fund management pedigree.
Having said that, we would like to see DMTSF put in a consistent performance over 3-5 years over various market phases (particularly the downturns) before recommending it to investors.
To that end, we recommend that investors consider investing in tax-saving funds like HDFC TaxSaver and HDFC Long Term Advantage, which have a proven track record over the long-term. Meanwhile, they can track the performance of DMTSF over a 3-5 year period and take a revised view on investing in the fund accordingly.
