Over the years, this ELSS scheme from Reliance MF has garnered a corpus of over Rs 10,000 crore. Over the past one year itself, it has added nearly Rs 3,000 crore to its AUM. The fund’s corpus, which was stagnant around Rs 4,000 crore at the beginning of 2016, began to rise steadily, crossing the Rs 8,000-crore-mark in April 2017. Within the next six months, the fund crossed the Rs 10,000-crore-mark.

Investors started flocking the scheme seeing its stellar performance in 2014. Though its performance in the subsequent years was subdued, in 2017 it once again beat the benchmark S&P BSE 100 by a wide margin.

The funds multi-cap asset allocation helped it to capitalize on the mid-cap led bull market rally. However, a large exposure to mid- and small-cap stocks, does pose a higher risk, catching many nascent investors unaware. The volatility (a measure of risk) of Reliance Tax Saver Fund is the second highest in the category.

Not surprisingly, over the past few months, the fund has come under pressure, given the correction in the equity market. Mid- and small-cap indices have plunged by over 10% as on March 21, 2018 since the beginning of 2018, in comparison to a 3% drop on the S&P BSE Sensex.

In this brief analysis, we take a close look at the features and performance of Reliance Tax Saver Fund.

Investment Objective of Reliance Tax Saver Fund

Reliance Tax Saver Fund has an investment objective to "generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments"

Reliance Tax Saver Fund Details

Fund Facts

Category	ELSS	Style	Blend
Type	Open ended	Market Cap Bias	Multi-cap
Launch Date	23-Sep-05	SI Return (CAGR)	15.18%
Corpus (Cr)	Rs 10,345	Min./Add. Inv.	Rs 500 / Rs 500
Expense Ratio (Dir/Reg)	1.04% / 1.79%	Exit Load	0%

Data as on February 28, 2018.
SI Return as on March 21, 2018.
(Source: ACE MF)

Under normal circumstances, Reliance Tax Saver Fund will allocate…

• 80% - 100% to equity and equity related securities

• 0%-20% to debt and money market instruments

Growth Of Rs 10,000, If Invested In Reliance Tax Saver Fund 5 Years Ago

Reliance Tax Saver Fund: Year-on-Year Performance

Reliance Tax Saver Fund: Performance Vis-à-vis Category Peers

Rolling Period Returns

Scheme Name	Corpus (Rs Cr)	1 Year	2 Year	3 Year	5 Year	Std Dev	Sharpe
IDFC Tax Advantage Fund	1084	33.11	18.26	17.67	21.60	14.46	0.12
Aditya Birla SL Tax Plan	683	25.91	16.50	17.52	21.33	13.04	0.09
DSPBR Tax Saver Fund	3905	24.68	19.31	17.32	21.37	14.15	0.10
L&T Tax Advantage Fund	2989	30.18	19.87	17.02	19.32	13.78	0.13
Principal Tax Savings Fund	385	33.09	21.59	16.91	21.70	16.68	0.12
Kotak Tax Saver Scheme	717	24.22	16.08	16.13	17.20	14.15	0.03
Axis LT Equity Fund	16161	22.20	13.09	15.46	23.22	12.29	0.05
Reliance Tax Saver Fund	10345	28.39	17.64	15.33	22.43	16.60	0.02
Invesco India Tax Plan	502	22.31	14.61	15.26	20.27	12.99	0.07
HSBC Tax Saver Equity Fund	178	28.41	18.45	15.06	19.49	15.05	0.07
BOI AXA Tax Advantage Fund	145	31.02	16.70	14.73	18.37	15.29	0.10
Franklin India Taxshield	3437	17.73	12.84	14.46	18.99	11.76	0.03
HDFC Long Term Advantage Fund	1583	26.46	19.27	14.01	18.78	13.48	0.10
Edelweiss Long Term Equity Fund	75	22.93	12.89	13.82	17.79	13.52	0.04
BNP Paribas LT Equity Fund	551	21.90	11.83	13.48	18.90	14.65	0.01
Taurus Tax Shield Fund	52	26.63	16.23	13.07	15.12	14.40	0.07
Quantum Tax Saving Fund	68	17.91	16.83	13.04	17.11	11.92	0.09
UTI LT Equity Fund	935	21.09	13.81	12.34	16.02	13.18	0.03
LIC MF Tax Plan	158	22.33	12.78	12.31	16.58	13.52	0.01
SBI Magnum TaxGain'93	6431	20.33	12.37	12.22	17.61	13.74	0.01
HDFC TaxSaver	7017	27.39	16.97	12.22	17.84	15.53	0.03
Baroda Pioneer ELSS 96	132	23.02	14.23	12.10	16.72	13.89	0.00
ICICI Pru. Long Term Equity Fund	5034	16.74	12.55	11.76	18.50	12.32	0.03
Canara Rob Equity Tax Saver Fund	857	20.53	11.99	10.86	15.49	13.68	0.00
Union Tax Saver Fund	205	15.59	7.99	7.47	13.98	13.04	-0.08
S&P BSE 100		21.11	13.24	9.26	13.45	13.20	0.00

Returns are on a rolling basis and those depicted over 1-Yr are compounded annualised.
Data as on March 21, 2018
(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.

The rolling-return performance of Reliance Tax Saver Fund is comparable to other top schemes in the category. Given its stellar performance in 2014 and 2017, the tax-saving fund ranks among the top schemes in the 1-year and 5-year rolling periods. As its performance in 2015 and 2016 was subdued, the returns over the 2-year and 3-year periods have ranked Reliance Tax Saver Fund lower down the order.

In terms of risk, Reliance Tax Saver Fund falls behind other peers in the category. The volatility, as measured by standard deviation, is extremely high in comparison to other schemes in the category. Given the high levels of risk, the fund falls down the ranks because of a low risk-adjusted return score.

The top five ELSS funds based on the 3-year rolling period performance include—IDFC Tax Advantage Fund, Aditya Birla SL Tax Plan, DSPBR Tax Saver Fund, L&T Tax Advantage Fund, and Principal Tax Savings Fund.

Investment Strategy of Reliance Tax Saver Fund

Reliance Tax Saver Fund endeavours to generate sustained long-term alpha. The assets are invested in an optimal mix of cyclical and defensive sector themes. The fund prefers to keep a balanced portfolio on a macro basis, allocating to themes like Domestic, Consumption & Defensive.

The fund also maintains an optimal balance between large cap companies and midcap companies. Though, a significant percent of the portfolio is invested in high conviction mid-cap companies.

Reliance Tax Saver Fund endeavours to invest in potential leaders — Companies that have a potential of high growth prospects over medium term (2-3 years). Generally, the fund has two or three sector calls at a time. They are mostly in-line of emerging market trends.

A small percentage of portfolio is also invested in contrarian calls. A significant exposure is taken in Multinational Companies.

Reliance Tax Saver Fund - Portfolio Allocation and Market Capitalisation Trends

Reliance Tax Saver Fund – Top Portfolio Holdings

Top 10 Stocks   Stocks % of Assets Tata Steel Ltd. 7.21 State Bank Of India 7.16 TVS Motor Company Ltd. 6.87 Tata Motors Ltd. 6.02 ABB India Ltd. 4.00 Ambuja Cements Ltd. 3.84 ICICI Bank Ltd. 3.49 Honeywell Automation India Ltd. 3.38 Bharat Forge Ltd. 3.35 SBI Life Insurance Company Ltd. 2.76	Top 5 Sectors
Holdings (in %) as on February 28, 2018 (Source: ACEMF)

Reliance Tax Saver Fund has a portfolio of 61 stocks. The assets of the scheme are concentrated to the top holdings. The top 10 stocks account for 48% of the assets. Tata Steel, State Bank of India and TVS Motor lead the list with a exposure of around 7% each. Tata Motors follows closely behind with an allocation of 6%. Other stocks on the top 10 list gain an allocation between 3%-4% of the assets.

Banks lead the list of sectors with a total allocation of 16%. Auto stocks follow behind with an exposure of 13%. Industrial Capital Goods and Industrial Products gain a weightage of 12% and 9% respectively. Clearly, the fund exposure is tilted to industrials. The fund manager is probably expecting a strong revival in the economy.

Top Gainers in Reliance Tax Saver Fund's portfolio

Among the top stocks in Reliance Tax Saver Fund's portfolio were TVS Motor, Honeywell Automation, Bharat Forge, Jet Airways, and Wheels India. These stocks rallied 59%, 74%, 50%, 67% and 72% respectively. Of these, the first four stocks were present among the top holdings in February 2018.

Simplex Infrastructures, Ramkrishna Forgings, Bombay Bumrah Trading and Automotive Axles were some of the other top stocks in the portfolio, with an exposure under 1%. These stocks returned 96%, 88%, 112% and 140% respectively.

Among the laggards in the portfolio were State Bank of India, Siemens, Canara Bank, Bank Of Baroda and Cummins India. These stocks added little value to the portfolio while some like Bank of Baroda and Cummins ended up dragging down the returns of the scheme.

Suitability of Reliance Tax Saver Fund

Though the market has corrected, the margin of safety is not conducive, unless you hold a very high-risk appetite. Hence, it is better to be very selective in you approach while building your investment portfolio. The same strategy should be adopted when selecting tax-saving schemes.

While on the returns front, the tax-saving scheme has not disappointed, in terms of risk, Reliance Tax Saver Fund has generated high volatility. This is mainly due to its high mid- and small-cap exposure.  Hence, you need to decide whether to invest in this scheme after due consideration of other schemes in the category.

Prefer mutual fund schemes that follow robust investment processes and systems, as against those indulging in momentum playing or even those that are extra-cautious. Both the latter investment strategies can lead to inefficient returns.

ELSS funds are an ideal investment avenue for high-risk investors to park their long-term funds and earn a tax rebate as well. Being equity oriented, only investors with a high-risk appetite should consider investing in such funds.  In terms of investment style, ELSS may be of any genre. They may follow growth or value style or even a combination of both. Moreover, they may restrict themselves to a particular market-cap or may invest without any market-cap bias.

When you invest in ELSS or a tax saving mutual fund, the amount invested is eligible for tax exemption under section 80C , but only up to Rs 1.5 lakhs will be eligible for tax exemptions (as per the current tax laws). Moreover, these mutual funds come with a lock in period of 3 years, which means your investment in these funds cannot be withdrawn before completion of 3 years from the date of your investment.

If you opt for ELSS funds, do ensure that the investments is in line with your financial goals. If you are not sure about how to align these schemes with your tax planning or financial goals, do consult your financial planner or investment advisor.

Note: This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. 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.

Editor's note: Most of you may have already completed your tax investments under Section 80C. Soon a new financial year will begin. Don't keep your tax planning for the last moment. Plan ahead and set your tax planning goals before the next financial year begins. As an investor, you need to pick the right and suitable ELSS funds to meet your tax planning goals. This is why PersonalFN's highly experienced research team adopts a process that combines both quantitative and qualitative factors when shortlisting funds. This process, which has been perfected through the years, has a good chance of picking funds that can deliver decent market-beating returns. If you are looking for the top ELSS funds to invest in 2018, do subscribe to PersonalFN's Exclusive Report - 3 Tax-Saving Mutual Funds For 2018. In this report, you will find the Top 3 ELSS that are geared to grow your investment multi-fold over the long term while saving your taxes. These Top ELSS Funds are handpicked through our special 7-point Selection Matrix methodology, and are considered to be potentially the best tax-saving mutual funds in the Indian market.

 

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