One of the oldest equity linked tax savings fund (ELSS), HDFC Taxsaver is also the third largest in the ELSS category , with assets under management of more than Rs 1,500 crore. This fund, once a powerhouse of performance, was categorised under the best performing tax saving schemes. But alas ,that is past, for the fund has been riding on a rollar coaster ride for quite some time now.
PERFORMANCE:
A look at HDFC Taxsaver’s historic performance reveals that the fund has had a taste of all seasons.Where on one hand it has outperformed its benchmark with unbelievable margins, on the other, it has been beaten very badly at times.
A highly popular tax saving fund until early 2007, the popularity of HDFC Taxsaver has however, been fading since then. It has had an outstanding show, especially in 1998-99 and 2004-05 , when the returns provided by the indices and other funds in the category were absolutely no match to HDFC Taxsaver’s rocking performance (See Performance Chart).
Things eventually started turning bad for the fund in 2006, when it returned about 34% against the Sensex’s 47% and the Nifty’s 40%. But having underperformed the major market indices, the fund did succeed in beating many of its peers. Its returns were higher than the category average of 30% and were also at par with the returns of its Benchmark index – S&P CNX 500.
However, the real deterioration started in 2007, which also coincided with a change in management. Vinay Kulkarni took over the fund’s management in Nov 2006. While the year 2007 was one of the best performing years in the history of the Indian stock market, the fund’s poor performance was a major setback. Its returns that year stood at about 38%, while the ELSS category gave average returns of about 58%. The Sensex gave returns of 46%, Nifty, 54%, and S&P CNX 500, 61%, during the year.
While year 2008 only added to its woes, the saving grace turned out to be in relativly better performance than many of its peers. Despite registering a negative growth (-52 %), the fund’s returns were higher than its benchmark’s (-57 %) and the category average (-56 %) and at par with those of the Sensex and the Nifty.
PORTFOLIO:
Heavy with highly volatile stocks such as ICICI Bank, Crompton Greaves, Reliance Industries, and others, the fund’s portfolio commands a high beta of 0.95. This shows fund’s tendency of moving with the markets. But has the fund kept its dates with the market? Not really! The fund’s performance history has resulted in a negative alpha. (Alpha compares the fund’s volatility with that of its benchmark.) A high exposure to one of the most cyclical sectors – the financial services – may be the reason.
With holdings as high as 24% in this sector alone, the fund has exposed itself to a high level of volatility. Infact, this sector has been commanding a higher composition in its portfolio for more than a year now. However, it has compensated for this volatility to some extent, by incorporating a good percentage of the defensive pharmaceutical sector , which currently commands about 11% of the portfolio’s equity exposure. Within its evenly diversified portfolio of 31 stocks, the fund’s exposure in top 10 scrips is as high as 40%, which makes it relatively aggressive.
It was however interesting to see the fund’s commitment to remain fully invested in equities despite the adverse market conditions. The fund has always maintained less than 10% in cash and this seems to have eventually paid off in the market upturn seen in the last two months.
OUR VIEW:
There is no denying that investors in the HDFC Taxsaver have had a see-saw ride in the past few years. Subscribers to the schemes in late 2006 and early 2007 have been in for a bit of disappointment . The fund’s rankings have also gone down during this period, From a consecutive winner of Gold medallion until September 2007,in the ET Quarterly MF Tracker, the fund has failed to rise beyond Silver thereafter.
The ray of hope, however, is seen in the fund’s performance in the past couple of months. And if the fund manages to keep up the tempo, this should help the investors to get over its past debacles.
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