It’s around this time that most of us
begin to think about tax planning. Among the options allowed under Section 80C
deductions,Franklin India Taxshield is a
good one. An ELSS fund, Franklin India Taxshield invests in equity, and has a three-year lock-in
period from the date of investment. The majority of its portfolio is in stable
large-cap stocks, making it a good fit for any kind of investor. It is a
winning combination of low volatility, near-perfect consistency in beating its
benchmark over the long term, and superior returns.
Evergreen performer
Franklin India Taxshield puts around three-quarters
of its portfolio in large-cap stocks (stocks whose market capitalisation is
above Rs 20,000 crore). Most ELSS funds have lower large-cap exposures. By
virtue of this large-cap slant and its valuation-rooted, quality-conscious investment
style, Franklin India Taxshield contains losses better than
most in correcting markets. In the 2008 crash, for example, Franklin India Taxshield 56 per cent drop was below
the average of 62 per cent for the ELSS category and even the 59 per cent
average loss large-cap funds delivered.
Of course, this strategy limits gains when markets take off.
The fund still does deliver above-average returns during market upswings. But
peers such as Reliance Tax Saver, Axis Long Term Equity and Birla Sun Life Tax Relief 96, deliver higher
bull-market returns–the three funds, for instance, clocked gains of 165
percent, 133 per cent and 117 per cent, respectively, in the 2013-2015 bull run
against Franklin India Taxshield 106
per cent.
But these funds are more volatile; though they rise more,
they fall more. Reliance Tax Saver , for example, dropped 29 per
cent in the correcting 2011 market, Birla Sun Life Tax Relief 96 lost
33 per cent while Franklin India Taxshield lost
17 per cent; this pattern repeats in other correcting market cycles too.
At the same time, the fund is also able to deliver superior risk-adjusted
returns, measured by the Sharpe ratio. In fact, Franklin India Taxshield has
among the lowest volatility and the highest Sharpe among ELSS funds.
On consistency too, the fund does well. While the fund goes
through short periods where it can underperform its category or benchmark, it
usually recovers quickly. It has beaten the category average a high 97 per
cent of the time when rolling 3-year returns over the past ten years. Against
its benchmark, the Nifty 500 index, Franklin India Taxshield is
similarly good. Since its inception, the fund has done better than the index
97 per cent of the time, when rolling 3-year returns. Barring Axis Long Term Equity Franklin India Taxshield has
among the best records of consistency in beating both category and benchmark.
In the one, three, and five-year periods, Franklin India Taxshield returns
are in the mid-quartile. This is partly due to the comparatively lower mid-cap
and small-cap holding at a time when these two segments have been indefatigably
marching higher. Another reason is its sector shift and stock choices.
Portfolio change
Franklin India Taxshield takes
a long-term perspective on its stocks, tending towards a buy-and-hold approach.
It considers stock valuations in light of long-term growth prospects, and tends
towards companies with high corporate governance and quality.
Given the promise in
economic growth and recovery, the fund has significantly increased holding in
banking. The sector now accounts for 32 per cent of the portfolio, up from
the 26 per cent six months ago. It still holds mostly private sector banks
here; Axis Bank is one stock where the fund has increased holding and which has
recently seen sharp corrections. Automobiles is the second sector where the
fund has increased stake; here too, the fund has upped share in Mahindra &
Mahindra, which can benefit from both a rural and urban recovery, and Maruti
Suzuki.
The fund hasn’t moved much into other
recovery-driven but troubled sectors such as metals, construction,
infrastructure, engineering, or energy; these sectors form very small shares in
the overall portfolio, even as peer funds hold these. This is also a
contributing factor to Franklin India Taxshield short-term underperformance
compared to peers as these sectors have run up sharply in the past six months.
Significant exposure is limited to cement, where demand as well as company
fundamentals are far more robust. As with most funds, Franklin India Taxshield has cut
holdings in the software sector, though the sector is still near the top.
Telecom holdings are also down.
Still, the fund’s portfolio holds a balance between
cyclical, defensive, and consumer themes that can hold it in good stead. The
fund is managed by R Janakiraman and Lakshmikanth Reddy, and has an AUM of Rs.
2392 crore.
