As we head to the end of the calendar year and the start of the peak tax-saving season, many investors look for options to save on outflows. Those opting for the old tax regime and wanting to save on tax via Section 80C can consider equity linked savings schemes of mutual funds. Given that the next budget would be presented early in February with there being no certainty on how deductions or tax rates would change after the event, it would be better for investors not to put off investments till the last minute. The 3-year lock-in for ELSS funds is among the shortest lock-ins and, in any case, equities do require at least that much of time to deliver reasonably. Each SIP (systematic investment plans) is locked in for three years.
In this regard, Parag Parikh Tax Saver Fund, which completed five years in operations a few months ago, can be considered by investors with a log-term horizon. The fund has been a top-notch and consistent performer over the years and investors can even consider directing this scheme for specific financial goals that are due in the distant future as well. This scheme can be the main tax-saving scheme in the portfolio.
Top performer
Parag Parikh Tax Saver has been among the best performers in the category.
On a point-to-point returns basis over the past one, three and five-year periods, the fund has outperformed its benchmark, Nifty 500 TRI, by 3-5 percentage points over longer timeframes.
When three-year rolling returns over the period July 2019-December 2024 are taken, the fund has outperformed its benchmark over 100 per cent of the time.
Parag Parikh Tax Saver fund has delivered more than 15 per cent and 18 per cent returns almost all the time on a three-year rolling basis over July 2019 to Dec 2024. It has given more than 20 per cent return nearly 93 per cent of time.
The mean returns on a three-year rolling basis over the above period is a robust 24.8 per cent. The Nifty 500 TRI managed about 20.4 per cent over the same timeframe.
When SIP returns over the past five years are taken, the fund has managed an XIRR of 25.5 per cent, making it a top-notch fund in the category.
The fund has an upside capture ratio of 85.2, indicating that it rises less than the benchmark Nifty 500 TRI during rallies. Its downside capture ratio, however, is only 47.1, suggesting that the fund’s NAV falls much less than the benchmark during corrections. A score of 100 indicates that a fund performs in line with its benchmark. These are data points for the direct plan from December 2021 to December 2024.
Value focus
As a fund house Parag Parikh is known for keeping the value style of investing at the forefront while choosing its picks.
The case of the tax saver fund is no different. It identified stocks such as ICICI Bank, Power Grid Corporation, ITC, HCL Technologies and Bajaj Holdings very early on when the post-Covid rally started more than four years ago. These stocks have delivered extremely well for the fund. Some mid and small-sized picks that ran up smartly, such as CDSL and CMS Info Systems, have also figured in the fund. The top five-six stocks usually have weightages of 5-9 per cent, but subsequent holdings are not concentrated.
Banks, finance and IT firms have always figured among the top holdings of the fund across cycles.
Power, consumable fuels and capital markets are some other preferred segments of the fund.
Across timeframes, Parag Parikh Tax Saver has ensured a large-cap bias in its portfolio with 65-70 per cent being such stocks. Small-caps also figure prominently at more than 12-13 per cent.
But the risks are somewhat tempered as the fund holds 15-19 per cent of its portfolio in cash and debt across time periods. This high proportion of cash and debt ensures that the fund falls less during corrections. More importantly, the higher cash position hasn’t hurt its performance.
Overall, the fund’s consistent performance and the value style emphasis make it suitable for most investor appetites. Even other than tax-saving purpose, this fund can be held by investors for the long term of 7-plus years. Directing the proceeds to specific financial goals could work better, though only ₹1.5 lakh can be invested in a financial year.
Why invest
High proportion of cash and debt
XIRR of 25.5 per cent over the past five years
