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The Mutual Fund Show: You Can Invest In Mutual Funds At Last Minute And Save Tax 

Many people seek last-minute investment options to save tax as the financial year draws to a close. And it’s usually done in haste, with little thought given to its benefit or implications.

The goal for such people is usually reaching the limit of Rs 1,50,000 via investments under section 80 C of the Income Tax Act, which can then be deducted from taxable income. Kaustubh Belapurkar, director-fund research at Morningstar, talks about five funds that qualify for tax rebate on BloombergQuint’s weekly series The Mutual Fund Show.

Unlike ordinary mutual funds, tax-saving funds come with a lock-in period of three years, said Belapurkar. “These funds are suitable for investors with a time horizon of over five years, as it enables an investor to beat market volatility.”

He said the three-year lock-in period helps tax-saving funds perform better, allowing fund managers to take “concentrated but calculated risks”. Belapurkar urged investors to opt for the SIP route, instead of lumpsums, as spacing out investments helps them take advantage of market volatility.

Watch the full show here:

Here are the edited excerpts of the conversation:

One of the funds that you are recommending in the ELSS category is the Axis Long Term Equity Fund. Why have you chosen this. Is this in a pecking order or is this in a random order?

Kaustubh Belapurkar: This has been one of our favourites in this space. Jinesh Gopani who manages this fund is a great manager and if you talk a little bit about the strategy, he builds a semi-concentrated portfolio. He has got a shortlist of 40-50 stocks that he will put in, so he is not going overly diversified.

The other more important thing is that he likes growth stocks. So, he really does not mind paying a premium as long as he can see visibility of growth, so that’s really his style of management. In terms of the way he constructs his portfolio, he has got some nose. He doesn’t like leveraged plays at all, he doesn’t like things like commodities or PSU banks or leveraged infra names. He stays away from regulated entities and sectors because he thinks that they go through cycles and he wants to avoid that. He largely builds a large-cap biased portfolio which adds solidity and I think his stock selection has worked brilliantly for him.

Why do you have a four-star rating on the Franklin Tax Shield fund? Is it the fund manager again?

Belapurkar: I would articulate that it’s a mix of both. Even with Jinesh, its not just the manager but the team. With Franklin, even more so. Lakshmikanth Reddy started managing this fund since the last two-and-a-half years. Prior to that he was with an insurance company, so we don’t have a track record. What we have seen, what we have established in the short-time period with Franklin, I think he has done a pretty good job. Second, he is backed by an excellent team,  which is a pretty stable team of fund manager and analysts which we highly regard. So that’s a very important check box that ticked off for us.

When you look at Laxmi’s style, the way he manages this strategy, he is looking at growth stocks but he does not want to pay any obnoxiously high premium. So he will be pretty cognizant of valuations when he is looking to build his portfolio. The other thing that he is done is he has tweaked the mandate a little bit. Earlier, when Anand Radhakrishnan was managing the strategy, he used to be largely focussed toward the large-cap stocks. Now, he has introduced a leeway that I see enough stories on the mid-cap side, I can add on may be about 30-40 percent, although right now he is still staggered towards large caps but he has that flexibility and we believe that he will use it when the time is right. Overall, a good combination of a rock solid team and a process which gives us comfort that over a market cycle, a fund like this should do exceedingly well.

HDFC Tax Saver Fund, not a four-star rated fund but a three-star rated fund. But you still like it?

Belapurkar: Vinay (Kulkarni) is an extremely experienced manager. He has seen multiple market cycles and I think that is very important to acknowledge. Obviously, he is backed by an excellent team again. HDFC has got an impeccable team in terms of the their analysts and their managers. So, all the support for him to get the stock ideas is all in place.

Vinay is a GARP (growth at a reasonable price) manager. The difference in Vinay is that, since he has seen market cycles, he acknowledges that I need to stay invested for a very long time. So if you look at the churn or the turnover ratio of the fund, it’s among the lowest in this category. He is almost like a pure buy and hold manager and in a fund like this is great because you have a three-year lock in. Investors once they have come in, you have visibility in your assets. So you can manage a strategy like this quite well. You have bought a stock, let the market forces move it in the short term but over the long term if you have the thesis right, its going to play out, and that is what he is sticking by. He also builds a reasonably concentrated portfolio, so his top 10 would be in excess of 50-55 percent of his portfolio. So that is his conviction flowing through.

Why do you like the L&T Tax Advantage Fund?

Belapurkar: So again I would say a slightly different approach, in the sense that the one thing we have come to appreciate of Soumendra Nath Lahiri is that he and his team has developed this knack of picking some of these counters before others and we have seen them do that where they where probably among the first buyers, well before the rest of the street acknowledged. That’s a huge fillip for the way they are actually identifying some of these ideas which really helps them. He runs a more multi-cap sort of strategies.

The other thing he does is build a pretty diversified portfolio. He’s not looking at a concentrated approach. He runs like a cap of 6 percent on his typical holding, he won’t like to breach that. And you know obviously now he’s got a pretty stable set of analysts and managers who are there along with him so that’s one focal point for us. That’s a plus point.

The other one is the DSP Tax Saver Fund. An ELSS category, and a four-star fund. It is a different strategy that Rohit Singhania follows. Why do you like that?

Belapurkar: DSP as a fund has always been going through a bit of a transition. But if you see the likes of Vinit Sambre, Rohit Singhania, they have been around for a while and they are pretty well-ingrained in the system and that is a great comfort for us. Rohit started off as an analyst and then started managing their infra fund—the tiger fund—and then has slowly taken on more diversified equity fund, the tax-saver being one of them. He has got a slightly different style from the street. So when we speak to him, the first thing he says is that he does not have a particular style or way he wants to manage the fund and wants to be more fluid with the investment decisions and he’s actually managed to pull that off. The people can see it but the proof is that have you actually done it? Rohit is one of those few managers who said it and actually proceed that over the last three-and-a-half years that he has been managing the fund. So it is pretty fluid.

He will move a little bit across market capitalisations. He has got a healthy large caps and a smaller mid-cap exposure, which is actually more constant in his portfolio, so those are his long-term bets. But on the large-cap side, he keeps trimming and adding positions. So, if he’s got a stock that he likes, but if he has seen the valuations run up, he won’t be afraid to take some money off the table. At the same time, if it gets excessively cheap, he’ll go in and add. He’ll move in and out of those strategies quite flexibly but that is largely on the large-cap side where has more liquidity to do it but he has pulled that off quite well. We have seen that over the last three years and we think he has the wherewithal to continue doing that.