Taking the right calls

Launched in February 2006, L&T Tax Advantage Fund is classified under the ELSS category of CRISIL Mutual Fund Ranking. It has featured in the top 30 percentile (CRISIL Fund Rank 1 or 2) in four consecutive quarters ended September 2017. The fund's month-end assets under management tallied at ~27.62 billion in November 2017. It is managed by Soumendra Nath Lahiri.

The fund's primary investment objective is to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities. Investments in ELSS funds come with a lock-in period of three years and are eligible for tax deduction of maximum ~0.15 million under Section 80C of the Income Tax Act.

Steady outperformer in recent years

The fund outperformed the benchmark (S&P BSE 200) in all trailing periods under analysis. It outperformed its category (funds ranked under the ELSS category in September 2017 CRISIL Mutual Fund Ranking) in all periods under analysis, except in the past seven year period.

The fund outshined its category in four of the six market phases analysed and outdid the benchmark in all phases. In the latest market phase, the fund returned a handsome 36.8 per cent (annualised) compared with 32.1 per cent by the category and 28.2 per cent by the benchmark.

An investment of ~1,000 in the fund on February 27, 2006 (its inception) would have grown to ~5,738 on January 1, 2018 at an annualised rate of 15.88 per cent, surpassing the category and the benchmark, which would have grown to ~4,604 (13.75 per cent) and ~3,610 (11.44 per cent), respectively.

Systematic investment plan (SIP) is a mode of investment which offers an opportunity to invest a fixed amount at regular intervals which is ideal for investors. Investments in L&T Tax Advantage Fund through the SIP route have outperformed similar investments in the benchmark across the time frames considered.

Portfolio analysis

Banks (19.35 per cent), construction projects (8.21 per cent), software (7.97 per cent), consumer non-durables (7.30 per cent) and cement (6.42 per cent) were the dominant sectors by average exposure over the past three years, together constituting almost half of the fund's portfolio. Of these top 5 sectors; banks, construction projects and cement also featured in the list of top 5 contributors to the fund's performance; others were industrial products and retailing sectors.

Retailing was the top contributor over the past three years on the back of Future Retail (tripled during its holding period) and Future Lifestyle Fashions (more than doubled). Over the past year i.e. from December 2016 to November 2017, the fund has increased exposure to this sector from 2.56 per cent to 6.17 per cent respectively.

Banks' contribution was led by HDFC Bank (almost doubled), Kotak Mahindra Bank and Federal Bank. The exposure to this sector was trimmed in the past year compared to its weight in the portfolio over the past three years.

Contribution by industrial products was almost singlehandedly driven by the dazzling performance by Graphite India, which grew more than six times over the past year and was ably supported by Timken India. Other top contributors to the fund over the past three years include Maruti Suzuki, Ramco Cements, and HPCL, all of which more than doubled.

Over the past year and a half, the fund has trimmed exposure to the software sector and increased exposure to finance sector. The fund held 60 stocks, on average, across 23 sectors during this period. Of the 117 stocks that it took exposure to, 20 were held consistently accounting for 45.11 per cent of the portfolio.