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Tax-saving funds (also referred to as Equity Linked Savings Schemes - ELSS) are well suited for investors willing to take risk. However, at the same time it also provides an opportunity to create wealth in one's tax-saving portfolio. Moreover, the lock-in period of 3 Years encourages long-term investing, which is a pre-requisite for fruitful return on equity investments. A well managed tax-saving fund can serve a dual purpose i.e. provide tax benefits (under Section 80C of the Income Tax Act, 1961) and assist investors' to accumulate wealth over the long-term. But to do so, the key lies in selecting a well-managed tax-saving fund with a long term horizon.
JPMorgan India Tax Advantage Fund (JITAF) is one such open-ended tax saving fund from the stable of JPMorgan Mutual Fund. JITAF is primarily mandated to invest in equities and equity-related securities of Indian companies along with debt and money market instruments. Launched in January 2009, the fund has been in existence for a little over 3 years now.
Investment Objective and Proposition
The fund's primary investment objective is "to generate income and long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities. However, there can be no assurance that the investment objective of the Scheme will be realized, as actual market movements may be at variance with anticipated trends."
The fund is mandated to invest 80% - 100% of its total assets in equity and equity-related securities and the rest (upto 20%) in debt and money market instruments to manage its liquidity requirements. However, under normal circumstances the fund aims to remain invested throughout, with maximum exposure to Debt and cash upto 5%.
JITAF holds predominantly a large cap portfolio with an average exposure of about 80%. The fund has been following a practice of disclosing its full portfolio only twice a year. As per the latest fully disclosed portfolio as on September 30, 2011, large cap constituted 81.4% of the portfolio while exposure to mid and small caps has been 11.4%. It held 7.2% of its assets in Debt and Cash. However, in the last one year, JITAF has held 56% - 86% in the large cap space, along with other equities comprising of 31% - 38% of its portfolio. The fund has refrained from taking aggressive cash calls as its composition in debt and cash has been a petite range of 6% - 10%.
Equity Portfolio
| Holdings | Sep 2011 | Oct 2011 | Nov 2011 | Dec 2011 | Jan 2012 |
| Reliance Industries Ltd. | 4.7 | 7.1 | 5.2 | 5.4 | 7.3 |
| ITC Ltd. | 6.7 | 7.0 | 6.8 | 6.5 | 6.0 |
| HDFC Bank Ltd. | 6.0 | 5.0 | 5.0 | 5.6 | 5.8 |
| Infosys Ltd. | 5.8 | 6.2 | 6.4 | 7.0 | 5.6 |
| HDFC Ltd. | 5.8 | 3.9 | 4.3 | 5.1 | 5.0 |
| ICICI Bank Ltd. | 4.8 | 5.2 | 3.9 | 4.7 | 4.8 |
| Larsen & Toubro Ltd. | 2.7 | 3.5 | 2.9 | 2.3 | 3.8 |
| IDFC Ltd. | 1.3 | - | - | - | 3.1 |
| Hindustan Unilever Ltd. | 1.7 | - | 3.1 | 3.4 | 2.8 |
| ACC Ltd. | 0.7 | - | 2.5 | 2.7 | 2.8 |
As indicated by the table above, JITAF's Top-10 equity portfolio constitutes of 'A' group stocks. Top-10 stocks comprised 47.1% of the portfolio, while top-5 sector concentration stood at 37.0% of its portfolio. JITAF is benchmarked against BSE-200.
The fund holds a fairly concentrated portfolio of equities with a bias towards large caps. The fund manager has a tendency to moderately churn the portfolio moderately which is revealed by the portfolio turnover ratio of 1.1 times.
Using Bottom up approach JITAF endeavours to invest in companies;
- With strong growth potential;
- Having a special product which has a particular market niche and therefore good earnings potential
- Undertaking corporate restructuring.
How JITAF has fared vis-à-vis its peers?
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
| HDFC TaxSaver (G) | 4.0 | 0.5 | 34.1 | 9.1 | 7.08 | 0.29 |
| Sahara Tax Gain (G) | 5.7 | 5.1 | 31.9 | 12.3 | 7.81 | 0.25 |
| Religare Tax Plan (G) | 2.4 | 5.1 | 30.7 | 12.1 | 6.57 | 0.27 |
| SBI Magnum TaxGain'93(D) | 7.0 | 2.5 | 25.5 | 5.2 | 7.45 | 0.21 |
| JPMorgan India Tax Advantage (G) | 4.9 | 1.4 | 21.8 | - | 6.24 | 0.20 |
| DWS Tax Saving (G) | 0.8 | -4.7 | 18.7 | 2.7 | 6.90 | 0.14 |
| BSE-200 | 8.0 | -0.4 | 27.0 | 5.7 | 8.21 | 0.19 |
The table above reveals that JITAF's performance has not been very luring when compared to top performers in the category. Moreover, the fund has failed to outperform even the benchmark index BSE-200 over last 3 years. It has clocked returns of 21.8% CAGR over the 3-Yr as against the 27.0% CAGR returns generated by BSE-200 over the same time frame.
When assessed on the volatility front, JITAF has exposed its investor to low risk (as revealed by its Standard Deviation of 6.24%) and has been partially successful in clocking attractive risk-adjusted returns (as revealed by its Sharpe Ratio of 0.20 which is higher than the Sharpe ratio of 0.19 of its benchmark). However the Sharpe ratio of JITAF looks ordinary when compared with some of the top performers in the category. This makes it a low risk- average return investment proposition in the ELSS category.
Fund Manager Profile
| Name of the Fund Manager | Mr. Harshad Patwardhan | Mr. Karan Sikka |
| Total Work Experience | Over 16 years | Over 07 years |
| Managing the fund since | Dec-08 | Sep-11 |
| Qualifications | B.Tech, MBA, CFA | CA, CFA |
As seen above the performance of JPMorgan India Tax Advantage Fund has been below average. It is noteworthy that the fund was launched towards the end of last bear phase and has yet to establish a good track record during the bearish market phases. Despite having the advantage of picking stocks at a cheaper valuation during its initial days; fund has failed to match the returns of its benchmark over last 3 years. This makes us believe that the fund has been unsuccessful in identifying growth stocks at reasonable valuations.
Hence in our opinion, investors would be better-off avoiding JPMorgan India Tax Advantage Fund and investing in a fund which has a proven track record and comes from the fund house following sound investment processes.
ELSS mutual funds can provide you with an excellent wealth creation avenue, apart from helping you avail the tax deductions. However, the investment in ELSS doesn't come without risk and hence requires your attention at the time of selecting a fund. Investment done without proper assessment may prove to be a blunder if your selection goes wrong. Thorough research of available options may help you take a well informed decision.
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