Mint50: What’s in and out?

Tata Equity PE and HDFC Tax-Saver were replaced by Axis Long Term Equity and Quantum Tax–Saving.
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First Published: Fri, Feb 01 2013. 08 36 PM IST
Updated: Sun, Feb 03 2013. 06 38 PM IST
What is in?
Axis Long Term Equity Fund: Launched in December 2009, Axis Long Term Equity Fund, an equity-linked savings scheme, or ELSS, belongs to a fund house that needs to be watched. Chandresh Nigam heads its equity fund management. Nigam has worked with the erstwhile Zurich India Asset Management Co. Ltd along with Prashant Jain between 1994 and 2003 up to the point when the fund house was acquired by HDFC Asset Management Co. Ltd in 2003. Between 1999 and 2003 when equity markets saw a big rise followed by an equally big fall that was led by a crash in information technology stocks, Nigam—who used to manage three schemes back then—returned 6.7% compared with its peers who lost about 6% during the same time period. At present, Jinesh Gopani manages it the scheme.
Axis Long Term’s corpus has grown steadily and now stands at just under Rs.400 crore. It invests in scrips across market capitalization. In 2012, Gopani reduced exposure to fast-moving consumer goods as he felt the valuations of many companies of the sector were high. Its holdings in scrips such as Gruh Finance Ltd, Bata India Ltd and Eicher Motors Ltd boded well for the fund. Ever since the fund was launched, it has done well in both rising and falling markets. “Instead of buying great stocks and momentum stocks, we prefer to buy great businesses. That, in a way, ensures that we hold on to the companies we buy, for a long period like five years,” says Nigam, head (investments), Axis Asset Management Co. Ltd.
Quantum Tax–Saving Fund: This fund becomes our third tax-saving equity fund in Mint50. Don’t go by this scheme’s tiny corpus size of just under Rs.10 crore. The main reason why it has remained such a small scheme, despite being launched four years back, is that Quantum Asset Management Co. Ltd avoids selling its schemes through distributors. Since it doesn’t pay distributors any commission—in fact, it insists that distributors should charge investors directly— most distributors avoid selling Quantum AMC’s schemes. But things are slowly changing for the fund houses as it has—over the years—performed well and kept expense ratios of its schemes low. From no distributor in 2006 when it was launched, about 40 distributors today sell Quantum AMC. Despite a tiny corpus, its expense ratio is one of the lowest in the category at just 1.25%.
Fund manager Atul Kumar manages the fund on the same lines—with minor differences—as he does his other equity fund, Quantum Long-Term Equity Fund (also, a part of Mint50). “A small corpus has not been a problem at all for us. In fact, we have seen inflows going up in this fund, of late,” says Kumar, who insists on picking up liquid scrips. Only those scrips that have a daily average trading volume of Rs.5 crore over the past one year period are eligible for Quantum Tax Saving Fund. “We don’t want a situation where if the fund buys a scrip today, thereafter the price goes up, and then if the fund wishes to sell the same scrip, there are no buyers,” he adds. The fund has consistently been investing in companies belonging to banks, software and automobile sectors, but Quantum Tax Savings Fund, typically, follows a bottom-up stock picking approach. Kumar also has a propensity to hold high levels of cash at times. In 2012, the average cash holding every month was about 12%.
What’s out?
Tata Equity PE: Presence of better alternatives and an uninspiring track record in the past three calendar years are the main reasons why Tata Equity PE moves out. This fund invests in scrips whose price-earnings (P-E) multiple, at the time of making the investment, is lower than BSE Sensex’s P-E. With returns of 17% and 30% in 2010 and 2012, respectively, Tata Equity PE underperformed the category average (multi-cap) that returned 18% and 32%, respectively, over the same years. A high holding in the energy sector—and holdings in companies such as Gujarat Gas Co. Ltd— didn’t bode well for the fund in 2012. “The fund was handicapped in the last two to three years as even the companies that had high valuations did well. The view till late last year—in the absence of reforms—was to stay in companies where growth is visible, even though they had high valuations. But now things are changing. With reforms having kicked in, we will now see people warming up to companies with good balance sheets,” says Bhupinder Sethi, head (equities), Tata Asset Management Co. Ltd.
HDFC Tax Saver: With returns of 29% in the past 10 years, HDFC Tax Saver comes with a good long-term track record. It invests in a blend of large- and mid- sized firms. “The fund, on account of a three-year lock-in period for investors, has relatively higher flexibility of investing in mid-cap companies operating in new/emerging businesses/sectors with a long-term gestation period. As of date, the fund has 35% in mid-cap stocks and 65% of assets in large-cap stocks,” says Vinay Kulkarni, fund manager, HDFC Asset Management Co. Ltd.
Hence, existing investors must stay put. Also, if you have an ongoing systematic investment plan with the fund, we suggest that you continue with it. The reason why we have dropped this scheme from Mint50 is because we feel that there are better alternatives in the equity-linked savings schemes (ELSS) space. HDFC AMC has the highest number of schemes in Mint50 with a count of seven, even after we take HDFC Tax Saver out. Typically, we prefer to have a diversified list of fund houses, though till date we haven’t shied from adding another scheme from the same fund house if there is a pressing need. But since our ELSS space already has Religare Tax Plan and two new entrants this season, we feel three schemes in ELSS are more than enough for an investment up to Rs.1 lakh; the amount that is eligible for tax deduction.
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First Published: Fri, Feb 01 2013. 08 36 PM IST
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