IDBI Tax Saving Fund

IDBI Tax Saving Fund an open-ended Equity Linked Savings Scheme (ELSS) offering tax benefit under Section 80C of the Income-Tax Act, 1961.

Summary

Type	An Open–ended Equity Linked Savings Scheme (ELSS) offering income tax benefits under Section 80C of the Income-Tax Act, 1961	Benchmark Index	S&P BSE 200
Min. Investment: Additional purchase:	For lump sum ⇒ Rs 500 and in multiples of Rs 500 thereafter For Systematic Investment Plan (SIP) ⇒ Monthly option: Rs 500 per month for a minimum period of 12 months or Rs 1,000 per month for a minimum period of 6 months Quarterly option: Rs 1,500 per quarter for a minimum period of four quarters Rs 500 and in multiples of Rs 500 thereafter	Exit Load:	Nil (for normal transactions / switch-in and SIPs)
Entry Load	Nil	Face Value	Rs 10 per unit
Issue Opens	August 20, 2013	Issue Closes:	September 3, 2013

 

Investment Objective*

The primary investment objective of the scheme is “to invest in predominantly in a diversified portfolio of equity and equity related instruments with the objective to provide investors with opportunity of capital appreciation and income along with the benefit of tax deduction (under Section 80C of the Income-tax Act, 1961) on their investments. Investments in this scheme would be subject to a lock-in period of 3 years from the date of allotment to be eligible for income-tax benefits under Section 80C. There can be no assurance that the investment objective under the scheme will be realized.”

 

(Source: Scheme Information Document)

 

Is this fund for you?

IDBI Tax Saving Fund (ITSF) is an ELSS scheme having a lock-in period of 3 years (from the date of allotment of units) from the stable of IDBI Mutual Fund. Investing in the ITSF offers a tax benefit under Section of the Income-Tax Act, 1961. In its endeavour of meeting its investment objective, ITSF would be investing in a dominant portion in equity and equity related instruments (which shall include equity shares, convertible preference shares, fully convertible debenture; amongst host of others) and the rest in debt & money market instruments (such as Certificate of Deposits (CDs), Commercial papers (CPs), Collateralized Borrowing & Lending Obligations (CBLO), Treasury Bill (T-Bills), non-convertible debentures and bonds, short-term deposits, floating rate deposits and securities created and issued by central state Governments). ITSF benchmarks its performance to S&P BSE 200 index as the scheme would hold a diversified portfolio of stocks while maintain higher weightage towards equities. Given the higher weightage to equity & equity related instrument, ITSF would be suitable for those investors who are willing to take high risk while undertaking their save tax saving exercise. So, while ITSF provides investors with the opportunity of capital appreciation and income along with the tax benefit, one needs to take into account his / her risk appetite and risk tolerance before investing hard earned money.

Portfolio & Investment Strategy
ITSF while constructing its portfolio would not keep a bias towards any specific sector or market capitalisation. The portfolio will seek to have a mix of all market capitalisation segments (viz. large cap, mid cap and small cap) in varying proportions. The fund manager depending upon the equity market outlook would take a calibrated investment approach to manage exposure to market capitalisation segments with an objective to beat the benchmark. So, ITSF would basically follow a fluid investment style and hold a diversified equity portfolio.

Stocks would be analysed on their investment merits such as the following prior to inclusion in the portfolio and would be monitored on an on-going basis:
 

• Competitive position;
• arnings growth;
• Management quality; etc.
   

This would help identify fundamentally strong companies that have long-term growth potential at reasonable prices while also exploiting short-term trading opportunities that may arise from time to time; which may be due to events in the equity markets, opportunities due to perceive mis-valuations or any other factors, where in the opinion of the fund manager offers an opportunity to enhance total return of the portfolio.

Under normal circumstances the asset allocation pattern for the scheme will be as under:

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity and equity related instruments	80	100	Medium to High
Debt and money market instruments	0	20	Low to Medium

(Source: Scheme Information Document)

 

It is noteworthy that according the Scheme Information Document (SID) ITSF shall strive to invest funds in the manner state above within a period of six months from the date of closure of New Fund Offer (NFO). Moreover, ITSF does not propose to invest in derivatives / securitized debt / ADRs / GDRs and foreign securitised.

 

Fund Manager Profile

The fund’s investments will be managed by Mr V. Balasubramanian who has over 32 years of experience in the field of finance, of which 14 years is in the mutual fund industry and 16 years in Banking. His stint with IDBI Asset Management Ltd. has been since May 2010 where he earlier worked as dealer until November 2011 and thereafter as a fund manager. Prior to joining IDBI Asset Management Ltd., Mr Balasubramanian has worked with treasury branch of Indian Bank (from January 2002 to May 2010) and Indian Bank Mutual Fund (from February 1990 to December 2001).

 

Fund Outlook

ITSF by adopting a fluid investment style would be able to tap opportunities across market capitalisation and sectors. But proclivity to a respective market capitalisation and the stock picking therein would determine the performance of ITSF. The launch of ITSF come at a time when, the Indian equity markets appear relatively reasonably valued, which offers the fund manager some margin of safety. However overall with downbeat macroeconomic variables in play, it could be a challenging task for the fund manager to construct the portfolio. Markets may offer trading opportunities in such times; but again it that would carry very high risk bringing volatility to returns and vehement churning. Likewise, at present with RBI’s measures to contain the Indian rupee, the Indian debt market too has encountered volatility. Yields have climbed which could tempt the fund manager to invest in debt; but if rupee continues to weaken further it could detrimentally impact their debt portfolio.

So, while risk control mechanism may be instilled to have a well-diversified portfolio, over the time period how the portfolio is constructed would define return of the portfolio in ITSF’s endeavour of capital appreciation and income for its investors.

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