Analysis - ELSS Funds(Contd..)

My impending analysis on ELSS funds would help choose some of the best managed funds for investment. As the financial year ends, many would cram to invest in tax saving instruments like ELSS, insurance, PPF and Bank FDs. Many may feel it wrong to invest in equity at a point when the world is going through an uncertain phase. Well, I would say, this is probably a good time (if not the best) to invest. If you invested without fear during 2007 and early 2008, there is no reason why you shouldn’t in 2009 when the markets have shelved more than 60% of their gains. However, I would recommend a 20-40% investment in equity (or equity linked tax saving instruments like ELSS) for the current financial year depending on your risk appetite. The remaining should be invested in a mix of instruments like bank FDs(5yr), insurance or PPF.

I analyzed 3 funds in my previous analysis and would add some more here.

1. Fidelity Tax Advantage

I don’t like the fund for its undisciplined approach to important disclosures. They don’t seem to disclose their latest portfolio information as quickly as some of the prominent funds do. Their latest portfolio is dated a month back (30th Nov ’08) as on today. So, I am analyzing based on their disclosed portfolio available as on date.

Asset Allocation
As on 30/11/3008

Equity 87.58%
Debt 0%
Others 12.52%

The funds equity position is more or less unchanged from the previous month. The fund has reduced exposure in RIL (5.96%), HDFC (4.23%) and Infosys (2.39%) while added exposure in ITC (4.89%), Bharti Airtel (4.60%), SBI (4.18%) and HUL (3.77%). The fund has marginal exposure to Satyam. While I like the fund manager’s actions, I think the fund still has huge exposure to RIL. At this point, I am negatively biased on the stock. In my view, funds need to have very little exposure to oil refining companies when oil prices internationally are under tremendous pressure. RIL would face margin crunch and would probably report flat numbers. Given this, I would have liked if the fund manager exited the holding completely or maybe reduced the exposure to less than 2% of the portfolio. The fund manager has also not increased his cash exposure and hence wouldn’t benefit as much.

Investment Valuation Stock Portfolio

Portfolio P/B Ratio 4.01
Portfolio P/E Ratio 14.75

Even though the fund has reduced its P/B and P/E as compared to the previous month, both the ratios are on the higher side as compared to other funds analyzed here. Hence, I recommend investors to invest in small quantities (<10%)> Again, it’s important to note that I am comparing this fund based on November ’08 data whereas other funds mentioned here are based on December ’08 data. I’ll review again once the fund releases its latest portfolio structure.

2. Kotak Tax Saver

Asset Allocation
As on 30/12/2008

Equity 82.18%
Debt 8.85%
Others 8.97%
I like the significant cash/debt exposure of the fund. Debt would yield superior returns than equity in the short term.

The fund reduced exposure to Bharti Airtel (4.25%), ONGC (3.03%) and HUL (2.62%) while increasing exposure to RIL (3.45%), ICICI bank(3.013%) and HDFC Bank(2.97%). The fund introduced NTPC during the month.

Investment Valuation Stock Portfolio

Portfolio P/B Ratio 4.19
Portfolio P/E Ratio 15.13

The fund would do well when the market picks up. However, for the short term, I see more downside. The funds P/E and P/B are high as compared to other funds analyzed here. I recommend investors to invest in small quantities.

3. Magnum Tax Gain

Asset Allocation
As on 30/11/08

Equity 77.30%
Debt 1.34%
Others 21.36%

I am analyzing the fund based on November ’08 data as the fund has not declared its latest portfolio as on date. The fund has increased its cash exposure significantly. This is positive considering that call rates have moved up in the short term. In the medium term, the fund would gain by entering stocks at lower levels.

The fund reduced exposure to RIL(4.21%), HDFC(3.29%) and L&T(2.95%) while increasing exposure in ONGC(2.78%), Bharti Airtel(2.66%) and SBI(2.19%).

Investment Valuation Stock Portfolio

Portfolio P/B Ratio 2.45
Portfolio P/E Ratio 13.97

I am comfortable with the funds P/B and P/E ratio and believe the fund is well positioned to capitalize on every downside. The fund has been making the right moves and hence I recommend buying the scheme.

4. Principal Personal Tax Saver

Asset Allocation
As on 30/12/08

Equity 83.41%
Debt 0%
Others 16.59%

The fund is sitting on good amount of cash which is a positive. The fund has increased exposure to RIL (4.82%), ICICI Bank (4.03%), Jindal Steel & Power (3.54%) and Bharti Airtel (3.24%) while reducing exposure to Crisil (3.07%), Indian Bank (2.51%) and Pantaloon Retail (2.3%). The fund has introduced Infosys Technologies and Cipla during the month.

Investment Valuation Stock Portfolio

Portfolio P/B Ratio 2.33
Portfolio P/E Ratio 11.73

I am comfortable with the funds P/B and P/E ratio and believe the fund is well positioned to capitalize on every downside. The fund has been making the right moves and hence I recommend buying the scheme.

5. Reliance Tax Saver

Asset Allocation
As on 31/12/08

Equity 79.05%
Debt 0%
Others 20.95%

The fund is sitting on good amount of cash and is well capitalized to benefit through phased equity investments in a falling market. The fund increased exposure in SBI (5.86%), Areva T&D (5.71%), HUL (4.06%) and Triveni Engineering (3.8%) while reduced exposure in Cipla(5.54%), ICICI Bank(3.72%), Infosys Technologies(3.36%) and TCS(3.29%). The fund is making the right moves by reducing exposure to technology and depending on old economy stocks like SBI and HUL.

Investment Valuation Stock Portfolio

Portfolio P/B Ratio 4.24
Portfolio P/E Ratio 14.99


The funds P/B and P/E ratios are on the higher side. However, considering the cash levels of the fund, the fund is well poised to capitalize once the market stabilizes. Considering all factors, the fund is a relatively safe investment in a falling market and would be a value buy once the market stabilizes. I recommend buying the scheme.

Investors should make use of market volatility in the coming weeks/months to enter into schemes listed above. Some salaried investors may need to look at dates set by employers for tax-proof submissions and then decide on the time of investment. Ideally, the best time to invest would be closer to Nifty support levels. I have pegged medium term Nifty target at 1800.