Canara Robeco Equity TaxSaver is one of the top performing equity linked savings schemes (ELSS) in the country. Equity Linked Saving Schemes (ELSS) is one of the most popular investments allowed under Section 80C, since the investors can avail double benefits of capital appreciation and tax savings. An ELSS is a diversified equity scheme with a lock in period of three years from the date of the investment. If you invest in an ELSS through a systematic investment plan (SIP), each investment will be locked in for 3 years from their respective investment dates. From tax purposes, both long term capital gains and dividends from ELSS are tax free.

Over various periods ELSS has generated slightly better returns than that of Large Cap Funds as a category. The lock-in period of three years in ELSS is advantageous from a fund management perspective, since the fund managers are free from redemption pressures and therefore are able to hold the stocks in their portfolio for a longer period of time, to generate superior returns. See the chart below, for the comparison of annualized returns over three, five, seven and ten year periods, between ELSS and the large cap funds categories (NAVs as on Feb 26)

Canara Robeco Equity TaxSaver, which is one of the oldest schemes in the ELSS category, is also clearly a top performer in this category across several time periods. See the chart below, for the comparison of annualized returns over one, three, five and ten year periods, between Canara Robeco Equity TaxSaver scheme and the ELSS Category (NAVs as on Feb 26)

Canara Robeco Equity Tax Saver – Fund Overview

This fund is suitable for investors looking for tax planning investment options under 80C with the expectation of long term capital appreciation. However, since this is essentially an equity oriented mutual fund, it is subject to market risk and volatility, compared to other tax saving instruments like PPF, NSC etc. However, equities as an asset class generate superior returns over the long term and serves as an effective hedge against inflation. As such the fund is suitable for investors planning for long term financial objectives like retirement planning. Launched in 1993, the Canara Robeco Equity Tax Saver fund is one of the oldest tax saving mutual fund schemes. The scheme is open both for growth and dividend plans. The fund has an AUM base of over Rs 600 crores, with an expense ratio of 2.33%. The fund manager of this scheme is Krishna Sanghvi. Under his watch the fund has delivered excellent returns. The current NAV (as on Feb 26 2014) is 30.5 for the growth plan and 18.0 for the dividend plan.

Portfolio Construction

The fund manager has large cap and high growth potential focus for his portfolio. From a sector perspective, the portfolio has a BFSI bias, with substantial allocations also to IT, Automobile, FMCG and Healthcare. This portfolio construction enables the fund manager to capture superior returns when markets rally, at the same time limit downside potential during downturns. In terms of company concentration, the portfolio is very well diversified with its top 5 holdings, TCS, Infosys, HDFC Bank, ICICI Bank and Reliance Industries accounting for less than 26% of the total portfolio value.

Risk & Return

In terms of risk or volatility measures, the annualized standard deviation of monthly returns for three years is 14.4%, which is lower than the volatility of ELSS category. While the volatility of the fund is lower than the category average, the annualized returns over the same periods are better than the category, indicative of strong risk adjusted returns performance from this fund. An investment of Rs 1 lakh in the growth plan of Canara Robeco Equity TaxSaver on its inception in Mar 1993 would have by now grown more than Rs 16 lakhs. Clearly in addition to saving taxes, this fund has helped in creating wealth for its investors.

Comparison with Peer Set

A comparison of annualized returns of Canara Robeco Equity TaxSaver fund versus its peer set over various time periods shows why this fund is considered a chart topper amongst its peers. The fund has beaten all its peers, except ICICI Prudential Tax Plan, over the long term. See chart below for comparison of annualized returns over one, three and five year periods. NAVs as on Feb 26 2014.

Dividend Payout Track Record

Canara Robeco Equity TaxSaver fund Dividend Plan has an excellent dividend payout track record. In its 21 year history, the fund has paid dividends every year, except 1997-98, 2002 and 2009.

SIP Returns

The chart below shows returns as on Feb 26 2014 (NAVof 30.5) of Rs 5000 monthly SIP in the Canara Robeco Equity TaxSaver fund Growth Plan, for respective years since inception (in March 1993). The SIP date has been assumed to first working day of the month. The amounts are shown in Rs lakhs.

The chart above shows that a monthly SIP of Rs 5000 started on the first working day of January 2000 would have grown to nearly Rs 16 lakhs, while the investor would have invested in total only about half of that amount. This would imply an internal rate of return of more than 14%, which is much higher than returns of some other tax saving investments (e.g. PPF) in the same period. If the investor started his SIP from inception of the fund, his or her corpus would have grown close to Rs 78 lakhs, with an investment of little over Rs 12.5 lakhs, demonstrating the power of compounded returns from SIPs in this fund.

The Canara Robeco Equity TaxSaver fund has delivered over 20 years of strong and consistent performance. The fund has established itself as a top performer tax saving scheme with great track record of investment returns and dividends. Investors planning for tax saving investments can consider buying the scheme through the systematic investment plan (SIP) or lump sum route with a long time horizon, for long term financial objectives. However, investors should ensure that the objectives of the fund are aligned with their individual risk profiles and time horizons. They should consult with their financial advisors if Canara Robeco Equity TaxSaver fund is suitable for their investment portfolio.