Superior multi-cap fund with large-cap disposition

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The DSP Equity Fund ranked in the top 30 percentile of the multicap category of the CRISIL Mutual Fund Rankings (CMFR) for the last three quarters ended September 2019. The fund has been managed by Atul Bhole since June 2016.

Assets under management of the scheme increased over 18 per cent in absolute terms over the past three years, from ~2,359 crore in October 2016 to ~2,786 crore in September 2019.

The investment objective of the scheme is to generate long-term capital appreciation, from a portfolio that substantially comprises equity securities and equity related securities of issuers domiciled in India.

Trailing returns

The fund has consistently outperformed the benchmark (Nifty500

TRI) and its peers (funds ranked under the multi-cap funds category in September 2019 CMFR) in all the trailing periods under analysis.

An investment of ~10,000 in the fund on June 7, 2007, (inception of the regular plan growth option of the fund) would have grown to ~42,328 on November 11, 2019, at an annualised rate of 12.30 per cent, compared to the category and benchmark that would have grown to ~38,075 (11.35 per cent pa) and ~32,235 (9.87 per cent pa) respectively.

Systematic investment plan (SIP) is a disciplined mode of investing, offered by MFS, through which one can invest a certain amount at regular intervals. Monthly investment of ~10,000 for the last 10 years, totalling ~12 lakh, would have grown to ~23.16 lakh (12.75 per cent annualised returns) compared to ~21.49 lakh (11.33 per cent annualised returns) in the benchmark as on November 11, 2019.

Portfolio analysis

The fund’s portfolio has been diversified across market caps, with predominant exposure to large-cap stocks.

Allocation to large-caps averaged 64.47 per cent during the past three years. Mid-cap and small-cap stock exposures averaged 17.08 per cent and 15.96 per cent respectively, during the same period.

The fund has actively managed allocations across market caps during the period under analysis, while maintaining a substantial allocation to large-cap stocks.

The portfolio was diversified across 28 sectors in the past three years. Banks had the highest average allocation of 21.91 per cent followed by finance (10.61 per cent), consumer non-durables (9.27 per cent), cement (5.88 per cent), and software (5.13 per cent).

The fund invested in 122 stocks in the past three years and consistently held 11 stocks. Bajaj Finance, ICICI Bank, HDFC Bank, V-guard Industries, and Asian Paints have been the major contributors to the fund’s performance during this period and were also consistently held. Out of the 11 consistently held stocks, seven outperformed the fund’s benchmark in the last three years.

Jitendra Solanki was paid ~32 lakh by his company after he lost an eye on the ship. The money was paid through an insurance company, as Solanki had suffered partial disability and his career in Merchant Navy was virtually over. However, when he bought a house with that money, he received an income-tax (I-T) notice seeking explanation of the source of income. In addition, the tax officer disputed that the compensation would be subject to tax.

Companies have policies for providing compensation to the employees or their legal heirs in case an employee dies or gets injured while in service. But there is a catch. Ideally, if the compensation is made through an insurance company for partial or full disability, it should not be taxable as it is under the contract of insurance. “But payment through an insurer, however, may not be free from litigation. The employee would still need to defend it. There are judicial precedents where it has been held that if payment is made for temporary disablement, it would be taxable. But where compensation is for permanent disablement, the same is a capital receipt and not taxable,” says Kuldip Kumar, partner & leader, personal tax at PWC India.

In the case of Solanki, the decision by the tax officer could have varied, depending on whether the insurance policy was approved by the Insurance Regulatory and Development Authority of India or was it an international policy.

In the case of a global insurance policy, the tax officer may not consider it as a valid insurance contract in India. Those in the Merchant Navy sail most of the year, and before examining the tax on compensation, one needs to see their residential status under the I-T Act.

Things are no different when the employer bears the burden. Tax experts are divided on how the compensation would be taxed. It may vary, depending on whether there’s temporary disability, partial or permanent disability. “If the compensation has been received on account of the injury, the exemption may be claimed on the reasoning that it is a capital receipt, thus, not chargeable to tax,” says Naveen Wadhwa, a chartered accountant with Taxmann.com. According to him,