Rama Krishna Vadlamudi June 17, 2010

It is always better to do some tax planning, especially by the salaried class and
individual taxpayers, during the beginning of a financial year rather than at the
fag end of it. You have now more than nine months time left and you can stretch
your investments over this period. There are a range of options available for
investors within the Rs one lakh tax deduction available under Section 80C of the
Income Tax Act in India. To know your tax slabs, just click for my document:

To know new income tax slabs for FY 2010-11, JUST CLICK:

http://www.scribd.com/doc/27601595

The following article will give you an idea about the performance of ELSS funds
or Equity Linked Savings Schemes of Mutual Funds, enabling you to invest your
hard earned money in some good and well-diversified funds with a long-term
track record. Before we know about the best funds, it would be instructive to find
out what are the funds that are at the bottom of the ELSS category:

Table 1. BOTTOM FIVE FUNDS ON 3-YEAR RETURNS BASIS

AAUM for
Sl.No. NAME OF THE FUND May.10 CAGR*
1-year 3-year 5-year
Rs crore % % %

1 Fortis Tax Advantage Plan 62 24.40 (1.36) -

2 Principal Tax Savings 274 25.03 (1.24) 16.22

3 ING Tax Savings 44 33.94 (0.90) 13.44

4 Escorts Tax Plan 6 23.24 0.52 14.81

5 LICMF Tax Plan 41 9.31 1.51 9.92

CATEGORY AVERAGE NA 28.04 8.28 18.44

Data Source: ValueResearchOnlline

*Compounded Annual Growth Rate as on June 16,, 2010; AAUM-Average Assets Under Management
 Rama Krishna Vadlamudi, BOMBAY June 17, 2010
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As can be seen from the above table 1, while the category (ELSS) average return for three years
is 8.28 per cent, the fund at the bottom delivered a negative return of 1.36 per cent with a gap
of about 10 per cent CAGR in returns, which will be huge in absolute terms. Even if we compare
the five-year performance, the category average is 18.44 per cent, the worst performing scheme
could deliver only 9.92 per cent CAGR with a huge gap of more than 8 per cent CAGR.

However, when you compare the returns of the best ELSS fund with the worst fund, the
difference will be huge. On a three-year basis as on June 16, 2010, the topmost fund has
delivered a return of 19.11 per cent (Table 3 below) and the worst fund (as given in table 1
above) gave a negative return of 1.36 per cent with the gap between the worst and best being
around 21 per cent. While selecting our funds, its better to know the funds at the bottom so that
we could choose the best funds for our mutual fund portfolio, while avoiding the funds at the
bottom. Now, let us come to the performance of Best ELLS schemes.

LIST OF BEST ELSS SCHEMES

Table 2. THE FABULOUS FIVE!

LARGE/MID CAP NAV as on
Sl.No. NAME OF THE FUND Bias RISK GRADE 16.06.2010
Rs
1 Canara Robeco EquityTaxSaver Large 58%, Mid 42% Average 19.88
2 Fidelity Tax Advantage Large 68%, Mid 32% Low 20.03
3 Franklin India Taxshield Large 77%, Mid 23% Low 187.60
4 HDFC Taxsaver Large 55%, Mid 45% Below Average 213.21
5 DSP BlackRock Tax Saver Large 50%, Mid 50% Average 16.25

Notes: All are growth plans and NAV is for growth plans; and all are open-ended schemes

Table 3. More on the Fabulous Five!

Sl.No. NAME OF THE FUND AAUM for May.10 CAGR
1-
year 3-year 5-year
Rs crore % % %

1 Canara Robeco EquityTaxSaver 170 38.23 19.11 28.91

2 Fidelity Tax Advantage 1,156 39.49 13.68 --

3 Franklin India Taxshield 764 29.50 11.97 21.08

4 HDFC Taxsaver 2,427 45.11 11.82 22.23

5 DSP BlackRock Tax Saver 815 37.63 13.77 --

CATEGORY AVERAGE NA 28.06 8.28 18.44

Notes: AAUM-Average assets under management; CAGR-compounded average growth rate; and returns as on 16.6.10

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 Rama Krishna Vadlamudi, BOMBAY June 17, 2010
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Other good funds include, Religare Tax Plan, Sundaram BNP ParibasTaxsaver, SBI Magnum
Taxgain 1993 and ICICI Prudential Tax PLan. Though past performance may not be a guide to
the future performance, it is expected that the funds given in Table 2 and 3 are going to do well in
future also. In the following pages, we shall discuss more on the performance and portfolio of
these schemes in specific and selection of mutual funds in general:

1. Canara Robeco Equity Tax Saver: This fund was launched in March
1993 and it is managed by an experienced fund manager, Anand Shah since
November 2008. The fund is tilted towards large cap stocks with a share of 58
per cent and the remaining invested in mid and small cap stocks. The fund is
having a risk grade of average. Its top picks include Reliance Industries, GAIL,
HDFC Bank, Sun TV Network and NTPC. Sectorwise, it is having an exposure of
24 per cent each to Financials and Energy; Services 14 per cent followed by
Healthcare and Technology.

2. FIDELITY TAX ADVANTAGE:

This fund was launched in January 2006 and it is managed by a veteran fund
manager, Sandeep Kothari since its launch. The fund is tilted towards large cap
stocks with a share of more than two-thirds in them. It is a conservative fund and
the fund manager is known for his consistency and long-term view. He usually
does not believe in keeping the assets in cash. It is a low-risk fund.

3. FRANKLIN INDIA TAXSHIELD:

This fund was launched in the second quarter of 1999 and it is managed by an
experienced fund manager, Anand Radhakrishnan since April 2007. The fund is
tilted towards large cap stocks with a share of 77 per cent in them. It is a
conservative fund and the fund manager is known for his consistency and long-
term view. Because of its higher exposure to large cap stocks, the risk is low.

4. HDFC TAXSAVER:
This fund was launched in March 1996 and it is managed by a skilled fund
manager, Vinay Kulkarni since November 2006. Compared to Fidelity Tax
Advantage and Franklin India Taxshield, this funds exposure to mid cap and
small cap stocks is much higher at about 45 per cent. The cash holding in the
scheme is around seven per cent only and usually the fund does not keep much
of its assets in cash. The funds risk is below average. However, the fund is well-
known for protecting investors money during bear markets or severe downturns
as was proved during 2008.

5. DSP BLACKROCK TAX TAXSAVER:

This fund was launched at the end of 2006 and it is managed by a veteran fund
manager, Anup Maheswari since its launch. Like HDFC Taxsaver, this funds
exposure to mid cap stocks is much higher at 50 per cent. The cash holding in
the scheme is practically zero. The fund is having average risk grade.

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The following filters have been applied while arriving at the above set of funds:
1) The reputation of the particular fund house is considered before picking up
individual schemes of that fund house
2) Experience and long-term track record of the fund manager
3) Consistency of returns during bear phases as well as bull markets
4) Long-term track record of the fund, say, more than three/five years
5) Only growth plans of open-ended, diversified equity mutual fund schemes
are considered
(Note: The author has been watching the mutual fund industry for more than 10 years and he may have certain biases in
selecting the funds.)

There is not any entry load on any of the above schemes. With effect from
August 1, 2009, entry loads are banned by the capital market regulator, SEBI. As
of now, these schemes do not charge any exit load (3-year lock-in period).

Some Caveats before investing in ELSS schemes

1. ELSS schemes are subject to a lock-in of three years from the date of
investment. Its better to invest in growth options, rather than dividend options, if
you are looking for long-term returns. Many a time, funds offer the bait of big
dividends towards the end of the financial year to attract more retail investors into
these schemes. Dividends are paid out of the NAV and as such investors do not
derive any benefit out of them. After dividends, the NAV comes down to the
extent of dividend paid.
2. ELSS schemes are eligible for tax deduction of up to a maximum of Rs one
lakh under Section 80C of Income Tax Act.
3. If youre in higher tax brackets of 20% or 30%, investment in these schemes is
more beneficial. However, if youre in 10% tax slab, its better to avoid them as
they carry the risk of three-year lock-in. Instead, you can go for good and
diversified equity mutual funds.

For knowing about good and well-diversified equity mutual funds, JUST CLICK:

Good and well-diversified equity MFs in India

http://www.scribd.com/doc/22665551

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 Rama Krishna Vadlamudi, BOMBAY June 17, 2010
www.scribd.com/vrk100 vrk_100@yahoo.co.in
MY BLOG: www.ramakrishnavadlamudi.blogspot.com

HOW TO CHOOSE EQUITY MUTUAL FUNDS

Before investing in an equity mutual fund, it would be better if investors take a

hard look at the following five parameters:

1) Sustainable Performance: Consider the performance of the fund during

several time periods in a bear market as well as a bull market. Dont
consider only the recent performance. Take into account the returns over
three/five year time periods.
2) Suitability: The investment objective of the fund must match with the
objective of the individual investor. Mid-cap funds may not be suitable for
some risk-averse investors. Likewise, investors with higher risk appetite
may like to invest in mid-cap oriented funds.
3) Fund Managers Track Record: Watch the track record of the fund
manager across various funds and different fund houses (if any)
4) Diversification: Check for the number of stocks and concentration of the
portfolio. Too large a number of stocks or too less may not provide optimal
returns for the investors in the long run.
5) Risk parameters: Look for Sharpe Ratio which is statistical tool
measuring risk-reward ratio. This ratio measures the amount of excess
mean return for each unit of risk taken by the fund.

For a detailed article on picking up good equity mutual funds, just click:UTUAL
FUN http://www.scribd.com/doc/20712330

Some Caveats before investing in equity mutual funds

1) Read the Scheme Information Document (SID) and Statement of
Additional Information (SAI) thoroughly before investing
2) MF performance is subject to market risk. During 2008, some good funds
had lost only 40 to 45 per cent against the loss of around 50 to 52 per cent
by the market. However, there are some funds which managed to lose
more than 85 per cent of their NAV in just one year!
3) Time you keep your money in the market is more important than TIMING
the market
4) The longer the time horizon of your investments, the lesser the risk
5) Regular investments through a Systematic Investment Plan (SIP) in the
market during the bull as well as the bear phases will give better returns
for long-term investors. Its better to avoid lump sum investments to the
extent possible.

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 Rama Krishna Vadlamudi, BOMBAY June 17, 2010
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6) Investors should invest a part of their savings or surplus as per their asset
allocation. Asset allocation is a process whereby every investor shall
allocate (depending on their own risk appetitie, risk profile, age, time
horizon, investment objective, etc) funds to different asset classes, like,
fixed deposits, PPF/NSC, equities, mutual funds, real estate, gold and
others; in addition to life insurance and medical insurance
7) Before jumping into equities or equity mutual funds, consult your certified
financial advisor and get his/her advice based on your investment
objectives and needs
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Data source: ValueResearchOnline

AUTHORS DISCLAIMER: This should not be construed as a recommendation by the author. The
author holds a small stake in a few mutual fund schemes and as such its safe to assume that the
author has a vested interest in general market going up. The views of the author are personal.
Readers or investors must consult their certified financial advisor before taking any decision on
their equity investments and the investment should be in line with their risk profile & risk appetite
and their general market perception. Any equity investment should be within their overall ASSET
ALLOCATION, which is extremely vital.

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