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Franklin Taxshield
A tax plan for the cautious investor
If you have limited risk appetite and are looking for tax-saving equity options, then Franklin India Taxshield is a good scheme to invest in the ELSS universe. With a return of 25.4 per cent compounded annually in the last 10 years, the fund convincingly beat its benchmark S&P CNX 500's return of 19.8 per cent over the same period.
This record is impressive considering that the benchmark index is a more diversified basket of stocks accounting for over 90 per cent of the total market cap, and is considered a tough benchmark to beat in the long term. The index has a good proportion of mid-cap stocks as well. Franklin Taxshield, on the other hand, managed this returns by predominantly investing in large-cap stocks
Suitability
Franklin Taxshield is suitable only for investors who cannot stomach too much risk and are content with reasonable returns that compensate the limited risk assumed. The fund fits such investors for the following reasons: one, it predominantly invests in large-cap blue chip stocks that are relatively less volatile in terms of earnings performance. Two, such exposure also contains downside risk during steep market falls, when mid-cap stocks typically bear the brunt of the market rout.
Three, except in 2009 when the fund preferred to participate in the market rally that just began, it has since 2004, been a regular dividend distributor for those who opted for a payout. As is the case with many funds from the Franklin house, the fund often pays dividends when it anticipates markets to peak.For instance, it paid hefty dividends twice in 2007, once at the beginning and once closer to the end of that year when markets rallied. To this extent, it is suitable for investors who wish to take some money off the table, given that their investment is otherwise subject to a three-year lock-in.
Performance
Franklin India Taxshield has a good record in the diversified fund universe, making it to the top quartile of performance chart over 3, 5, 7 and 10 year time frames. Unless you need the money after the three-year lock-in, you can consider holding this fund for longer time frames as well.
The fund performs particularly well in volatile markets as demonstrated in the last three years. Its compounded annual return over this period, at 10.6 per cent, is higher than top peers such as ICICI Pru Tax Plan. On a risk-adjusted basis (measured by Sharpe Ratio), the fund stands out as the top player in the ELSS universe over the last three years, suggesting that it delivers adequately for the measured risk it undertakes.
Over the same period, the fund beat its benchmark close to 90 per cent of the times on a rolling return basis. Over the last one year though, the fund lagged its benchmark by a percentage point. It also lagged quite a few peers. This could be primarily attributed to the rally in midcaps. The fund's benchmark has a good proportion in mid-cap stocks. Top peers in the last one year, such as Reliance Tax Saver also held as much as two-thirds of their holding in mid-cap stocks to ride the rally. Franklin Tax Shield, though, held about a fourth in midcaps.
Portfolio
Besides lower exposure to mid-caps, Franklin India Taxshield's exposure to certain sectors until the beginning of 2012 did not help either. Higher exposure to sectors such as software, which underperformed, and lower exposure to the robust pharma sector a year ago, may also have resulted in marginal underperformance. But the fund had by mid 2012 pruned exposure to software by reducing stakes in stocks such as Infosys and by also upping its holding in the pharma space. Holding in the telecom stock Bharti Airtel was also reduced. Gateway Distriparks, Gujarat Pipavav Port and Jagran Prakashan are some of the interesting mid-cap stocks that the fund holds.The fund is managed by Anand Radhakrishnan and Anil Prabhudas
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