Parag Parikh Tax Saver Fund: High Return Potential with Tax Benefits

Nov 24, 2022
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Investment in ELSS, also known as tax saving mutual fund, comes with tax benefit of up to Rs 1.5 lakh in a financial year. ELSS also has the shortest lock-in period of 3 years, compared to a lock-in period of 5 years or more in other tax-saving instruments.

Over the long run, ELSS can potentially generate higher returns compared to other instruments such as Public Provident Fund, National Saving Certificates, and 5-year Tax Saver FD, provided you choose schemes wisely.

Parag Parikh Tax Saver Fund is a value-oriented ELSS that has shown commendable growth to find a place among top-quartile performers in the category by focusing on quality stocks.

Graph 1: Growth of Rs 10,000 if invested in Parag Parikh Tax Saver Fund at inception

Incepted in July 2019, Parag Parikh Tax Saver Fund is one of the latest entrants in the ELSS category. The fund aims to create a diversified portfolio of large, mid, and small-sized companies in India spread across sectors and industries. Despite having a short track record of little over three years, Parag Parikh Tax Saver Fund has grabbed investors' attention by showcasing superior performance. Consequently, its corpus has more than doubled in the last one year. Parag Parikh Tax Saver Fund efficiently limited the downside risk during the 2020 market crash while it also stood among the top performers in the category in the ensuing recovery/bull phase. As a result, the fund currently stands among the top quartile performers in the ELSS category. Meanwhile, it has also generated significant alpha over the benchmark. Since its inception, Parag Parikh Tax Saver Fund has registered growth at a CAGR of 25.2%, compared to a growth of 18.3% CAGR registered by its benchmark Nifty 500 – TRI. An investment of Rs 10,000 in Parag Parikh Tax Saver Fund at the inception would have now appreciated to Rs 21,150 as against a valuation of Rs 17,513 for a simultaneous investment in its benchmark.

Graph 1
Past performance is not an indicator of future returns
Data as on November 21, 2022
(Source: ACE MF)
 

Table: Parag Parikh Tax Saver Fund's performance vis-á-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Tax Plan 2,127 12.29 45.67 39.07 23.56 24.03 26.44 0.36
Parag Parikh Tax Saver Fund 848 9.54 27.02 25.07 -- -- 18.81 0.31
Bank of India Tax Advantage Fund 676 -0.76 24.13 24.45 14.93 16.78 21.27 0.27
IDFC Tax Advt (ELSS) Fund 3,986 4.84 31.69 24.42 13.75 16.47 25.78 0.24
Canara Rob Equity Tax Saver Fund 4,407 0.75 23.98 21.94 16.68 15.87 21.33 0.24
Mirae Asset Tax Saver Fund 13,546 -0.36 22.58 20.46 15.37 -- 23.20 0.22
PGIM India ELSS Tax Saver Fund 437 5.69 27.12 20.42 13.74 -- 22.51 0.22
Union Long Term Equity Fund 576 1.26 23.65 20.01 13.68 13.01 21.82 0.22
Mahindra Manulife ELSS Kar Bachat Yojana 517 3.88 27.14 19.97 11.51 -- 22.10 0.21
Kotak Tax Saver Fund 3,063 4.64 24.98 19.74 13.87 15.64 22.29 0.22
NIFTY 500 - TRI 2.26 22.32 18.02 12.25 14.21 23.19 0.19
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on November 21, 2022
(Source: ACE MF)
*Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
 

Parag Parikh Tax Saver Fund has established a superior track record for itself within a short span of time. The fund has stood strong against its popular peers and has managed to outperform the category average as well as the benchmark by a noticeable margin across time periods. Over the long-term horizon of 3 years, Parag Parikh Tax Saver Fund has generated returns at a CAGR of 25.1%, which is among the highest in the category and has outpaced the benchmark by a margin of around 7 percentage points in CAGR.

More importantly, Parag Parikh Tax Saver Fund has achieved this feat at a reasonable risk. The volatility registered by the fund is the lowest in the ELSS category and much lower compared to the benchmark. Its Sharpe Ratio of 0.31, reflecting the fund's ability to deliver better risk-adjusted returns, is currently among the best in the category and far ahead of the benchmark.

Parag Parikh Tax Saver Fund: High Return Potential with Tax Benefits
Image source: www.freepik.com - photo created by katemangostar
 

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Investment strategy of Parag Parikh Tax Saver Fund

Categorised as ELSS, Parag Parikh Tax Saver Fund is mandated to invest at least 80% of its assets in Indian equities. Parag Parikh Tax Saver Fund has the flexibility to invest across market caps and sectors. Guided by the principles of value investing, Parag Parikh Tax Saver Fund avoids momentum bets as well as stocks that are overvalued. Instead, the fund focuses on fundamentally sound, low debt, and cash generating businesses available at reasonable valuations.

Parag Parikh Tax Saver Fund adopts the bottom-up approach to realise the full potential of each of its stocks. The fund has the flexibility to invest across market caps. At present, the fund holds a large-cap biased portfolio with significant exposure to small-caps and some exposure to mid-caps. Parag Parikh Tax Saver Fund holds each of its high-conviction stocks with a long-term view. Accordingly, the fund has a low turnover ratio of less than 10% in the last one year.

Graph 2: Top portfolio holdings in Parag Parikh Tax Saver Fund

Graph 2 Graph 2
Holding in (%) as of October 31, 2022
(Source: ACE MF)
 

Parag Parikh Tax Saver Fund currently holds a compact portfolio of 25-30 stocks. As of October 31, 2022, the fund held 29 stocks in its portfolio, with the top 10 stocks accounting for about 60% of its holdings. The top 10 holdings consist mainly of large-cap names such as Bajaj Holdings & Investment, HDFC Ltd., ITC, ICICI Bank, and Axis Bank. Maharashtra Scooters is the only stock from the smaller market cap among its top holdings.

ITC, Bajaj Holdings & Investment, Maruti Suzuki India, Power Grid Corporation, and Axis Bank were among the stocks that turned out to be top contributors to Parag Parikh Tax Saver Fund's gains in the last one year. ICICI Bank, CCL Products (India), ICRA, and Sun Pharma were among the other top gainers in the fund's portfolio.

Sector-wise, Parag Parikh Tax Saver Fund's portfolio is skewed towards Finance stocks, along with substantial exposure to Infotech, Auto & Auto Ancillaries, and Bank. Consumption, Power, Mining & Metals, and Pharma are the other core sector holdings in the fund's portfolio.

 

Suitability

Parag Parikh Tax Saver Fund has built a proven track record in a relatively shorter span of time. Since its launch, the fund has stood strong beside its popular peers in the category, thereby exuding confidence among investors. The fund's ability to timely identify and invest in fundamentally sound undervalued stocks has benefited the fund so far.

What is more important is that the fund management gives a high preference to safety over returns. The fund managers do not compromise on the risk aspects to generate higher returns. but maintains a diversified portfolio of quality stocks with a long-term view. This strategy of the fund house has enabled it to keep the risk under control and perform well even in uncertain market conditions. With an experienced fund manager at the helm, Parag Parikh Tax Saver Fund seems to be in capable hands.

Parag Parikh Tax Saver Fund is suitable for investors looking to invest in a well-managed ELSS with a view to benefit from wealth creation and tax-saving over an investment horizon of 3-5 years.

 

Warm Regards,
Divya Grover
Research Analyst

 

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Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

 

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About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

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