Reliance Tax Saver has given one of the best lump sum and SIP returns

If you had started a monthly Systematic Investment Plan of र 10,000 in Reliance Tax Saver Fund 10 years back, by now you would have accumulated a corpus of nearly र 28.51 Lakhs with a cumulative investment of just र 12 lacs.

In fact, Reliance Tax Saver Fund delivered the highest 10 year SIP returns among all mutual fund Equity Linked Savings Schemes in India in the last 10 years.

Similarly a lump sum of र 100,000 invested 10 years ago will now be र 318,000. More than 3 times return in 10 years!

Equity Linked Savings Scheme (ELSS) is one of the most popular tax saving investments under section 80C of the Income Tax Act 1961. By investing in ELSS, the investors can avail three benefits - Tax savings, capital appreciation and tax free returns (Long term capital gains as well as tax free dividends). To know why ELSS is the best long term tax saving investment option, you may like to read our article, The best tax saving investment: Should you invest in PPF or ELSS.

In the 2014 budget the overall limit under section 80C was increased to र 1.5 Lakhs. Apart from saving up to र 46,350 in taxes per year by investing in Equity Linked Savings Schemes (ELSS), the ELSS investors can also build substantial wealth over a long investment horizon. In fact, for young investors ELSS should be the first tax saving investment choice to plan for their long term goals like, retirement planning and child education etc.

Fund Performance versus Category

Reliance Tax Saver fund has been one of the best performing ELSS Funds for a long time. In fact this fund has consistently been amongst the top 5 ELSS Fund, in terms of trailing returns over various time-scales ranging from the last 1, 3, 5 and to the last 10 years.

The fund has generated nearly 15% compounded annual returns since its inception in September 2005. See the chart below, for the comparison of trailing annualized returns over three, five, and ten year periods, between Reliance Tax Saver fund (Growth Option) and the ELSS Category (NAVs as on January 11 2017). As you can see, the fund has beaten the ELSS category returns by a good margin over various time periods.

Source: Advisorkhoj Research

Reliance Tax Saver Fund outperformed its peers on a fairly consistent basis ever since its inception. The chart below shows the annual returns of the Reliance Tax Saver (Growth option) and the ELSS category since 2006 to 2016.

Source: Advisorkhoj Research

Morningstar and Valueresearch both have assigned a 4 star rating for this fund.

Fund Comparison with PPF

As discussed above, this fund is suitable for investors looking for tax planning investment option under Section 80C while expecting long term wealth creation. However, since ELSS funds are essentially equity funds, therefore, it is subject to market risk and volatility as 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. The same is evident from the chart below which shows how Reliance Tax Saver fund has beaten the returns of Public Provident Fund.

In the chart below we have compared the results assuming, what would have been the return if the investor would have invested र 10,000 per month in both – Reliance Tax Saver Fund as well as PPF?

The result shows that the Investor would have accumulated र 27.55 Lakhs in Reliance Tax Saver Fund compared to र 18.92 Lakhs in PFF whereas his investment in both would have been र 12.00 Lakhs each. Clearly, Reliance Tax Saver has given र 8.63 Lakhs more than PPF.

Source: PPF Vs ELSS tool - Advisorkhoj

Fund Overview

What distinguishes Reliance Tax Saver funds from most of its peers is the midcap orientation of its fund portfolio, as opposed to the large cap or diversified orientation of most ELSS funds. As we know midcap stocks could be more volatile than large cap stocks, but they also have the potential to provide higher returns than large cap stocks.

The fund has an AUM base of over र 5,871 Crores 9as on Dec 2016), with a relatively low expense ratio of 2%. The fund manager, Ashwani Kumar, is managing the fund since its inception. Ashwani is very experienced and has a great track record of generating high alphas as a fund manager.

Reliance Tax Saver fund is an ideal fund those investors who are planning for long term financial objectives like retirement planning, children’s education, marriage and long term wealth creation etc.

Portfolio Construction

Ashwani Kumar as a fund manager likes to employ a bottoms stock picking approach to his portfolio and identifies companies at attractive valuations with high growth potential. About 40% of the portfolio holding of Reliance Tax Saver Fund is invested in midcap stocks. In the last two years the fund manager has reduced exposure to midcaps and allocated more to large cap companies. There is a sensible logic underlying increasing allocation to large cap companies like Tata Steel, L&T and Infosys.

From a sector perspective, the portfolio has a bias for cyclical sectors like Automobiles and Auto Ancillaries, Banking and Finance, Capital Goods, Industrial Products, Metals etc. As the investment cycle revives in our economy these sectors have the potential to deliver strong earnings and consequently excellent returns. In terms of company concentration, the portfolio is very well diversified with its top 5 holdings, TVS Motor, SBI, Tata Steel, L&T and ICICI Bank accounting for only 32% of the total portfolio value.

Source: Advisorkhoj Research

Performance comparison with Peer Set

A comparison of annualized returns of Reliance Tax Saver Fund versus its peer set over various time periods shows why this fund is considered a chart topper in ELSS funds category. In terms of trailing annualized returns, the fund has beaten all its peers, across most time periods over the past 1, 3 and 5 years. In fact it has delivered the best 3 and 5 years returns amongst its peers.

See chart below for comparison of annualized returns over one, two and three year periods. NAVs as on January 11 2017.

Source: Advisorkhoj Top Performing ELSS Funds

Risk & Return

In terms of risk measures, the volatility of the Reliance Tax Saver fund is understandably on the higher side, given its high exposure to small and midcap segments, however the fund has been a wealth creator for investors as can be seen from the lump sum and SIP returns of the fund since inception

Lump sum Returns

र 1 Lac lump sum investment in the Reliance Tax Saver fund NFO (growth option) on September 21, 2005 would have grown to value of nearly र 5 Lakhs as on January 11 2017. Whereas the same amount, if invested in BSE 100 and CNX NIFTY, would have grown to र 3.23 Lakhs and र 3.19 Lakhs respectively. Please check here lump sum return of Reliance Tax Saver Fund

SIP Returns

The chart below shows the returns since inception of र 5,000 invested monthly through Systematic Investment Plan mode in the Reliance Tax Saver fund (growth option). The chart below shows the SIP returns of the fund since inception. NAVs as on January 11 2017.

Source: Advisorkhoj Research SIP returns

The chart above shows that a monthly SIP of र 5,000 started at inception of the Reliance Tax Saver fund (growth option) would have grown to over र 17.76 Lakhs by January 11 2017, while the investor would have invested in total about र 6.80 Lakhs. The SIP return over the last 10 years or so of Reliance Tax Saver Fund was 16%.

Investors should bear in mind that the last 10 years was not a one way bull market. We had worst bear market in the 50 years of global equity markets in 2008. We also had bear markets in 2011 again in 2015 / early 2016 the market fell by nearly 20% from the previous high. Bear market is a reality of stock market investing. However, bull market inevitably follows a bear market and the market scales a new high. This is the essence of equity investing. In fact, through the SIP mode, you can make volatility your friend, through rupee cost averaging and get excellent returns in the long term. The outstanding SIP performance of Reliance Tax Saver Fund is a terrific example of wealth creation over the long term, despite the intervening periods of volatility.

Conclusion

Reliance Tax Saver Fund completed more than 11 years and during this time has established itself as one the best Equity Linked Savings Schemes (ELSS) Mutual Fund Schemes in the Indian Mutual Fund industry. It has been a strong outperformer and has created immense wealth for the investors. The long term performance of Reliance Tax Saver fund is a testimony of the power of ELSS as a wealth creation investment. Investors looking to save taxes under Section 80C can consider investing in the scheme through the systematic investment plan (SIP) or lump sum route with a long time investment horizon. While investing in equity mutual funds or in ELSS Funds, investors must ensure that the investment objectives of the fund are aligned with their individual risk profiles, time horizon and financial planning objectives. You should consult with your mutual fund advisor if Reliance Tax Saver fund is suitable for your tax planning and investment needs.