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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.
UTI Equity Tax Savings Plan (UETSP) is one such open-ended tax saving fund from the stable of UTI Mutual Fund. UETSP is primarily mandated to invest in equities and equity-related securities along with debt and money market instruments. Launched in December 1999, the fund has been in existence for more than 12 years now. However, the growth option is on offer only since August 2005.
Investment Objective and Proposition
"An open-ended equity fund investing a minimum of 80% in equity and equity related instruments. It aims at enabling members to avail tax rebate under Section 80C of the IT Act and provide them with the benefits of growth."
Over the past one year, UETSP's exposure to large cap stocks has been in the range of 69% - 77%, while its exposure to mid & small cap stocks has ranged from of 19% - 24%. The fund's exposure to debt and cash over the past one year has never been more than 10% which indicates its tilt towards staying invested in equities with occasional cash calls. As per the portfolio disclosed on January 31, 2012, fund has allocated 70.3% to large caps while its investment in mid & small caps stands at 19.9% and exposure to cash has been petite 9.8%.
Equity Portfolio
| Holdings | Sep 2011 | Oct 2011 | Nov 2011 | Dec 2011 | Jan 2012 |
| ITC Ltd. | 6.2 | 6.4 | 6.6 | 6.9 | 6.4 |
| Reliance Industries Ltd. | 5.4 | 5.6 | 5.4 | 5.1 | 5.5 |
| Infosys Ltd. | 6.3 | 5.4 | 5.3 | 6.0 | 5.4 |
| Sun Pharmaceutical Inds. Ltd. | 4.1 | 4.3 | 4.8 | 4.8 | 4.9 |
| HDFC Bank Ltd. | 4.6 | 4.6 | 4.5 | 4.6 | 4.8 |
| HDFC Ltd. | 3.7 | 3.8 | 3.9 | 4.1 | 4.0 |
| Tata Consultancy Services Ltd. | 3.6 | 3.5 | 3.8 | 4.2 | 3.5 |
| State Bank Of India | 3.0 | 2.9 | 2.9 | 2.8 | 3.2 |
| Asian Paints Ltd. | 3.1 | 3.0 | 2.9 | 2.8 | 2.9 |
| Ultratech Cement Ltd. | 3.2 | 3.1 | 2.9 | 3.1 | 2.9 |
As indicated by the table above, UETSP's top-10 equity portfolio constitutes of all 'A' group stocks. As on January 31, 2012 the fund held in all 47 stocks in portfolio, out of which 'A' group stocks accounted for 72.3% and the rest 27.7% were the 'B' group ones. The fund holds a portfolio which is diversified across sectors and across stocks within the sector. Top-10 stocks account for 43.5% of the portfolio while Top-5 sector concentration stands at 42.6%. UETSP is benchmarked against BSE 100, and its portfolio churning has been very low as revealed by its portfolio turnover ratio of 0.29 times.
UETSP endeavours to invest in leading companies across sectors, with an aim to provide superior risk adjusted return i.e. return with relatively lesser volatility. The Fund normally invests with a long term perspective, in companies that are believed to have growth potential.
How UETSP has fared vis-à-vis its peers
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
| Sahara Tax Gain (G) | 4.2 | 3.1 | 32.5 | 13.2 | 7.81 | 0.26 |
| Religare Tax Plan (G) | 0.4 | 1.8 | 31.0 | 13.1 | 6.58 | 0.29 |
| DSPBR Tax Saver (G) | 5.2 | -1.9 | 29.2 | 10.7 | 7.34 | 0.24 |
| SBI Magnum TaxGain'93 (D) | 6.0 | 1.0 | 26.2 | 6.1 | 7.47 | 0.22 |
| HSBC Tax Saver Equity (G) | 6.0 | 0.1 | 25.2 | 8.0 | 6.99 | 0.22 |
| UTI ETSP(D) | 1.7 | -2.1 | 22.6 | 5.47 | 6.60 | 0.20 |
| BSE-100 | 6.0 | -3.4 | 26.9 | 6.9 | 8.13 | 0.20 |
The table above reveals that UETSP's performance has been dismal when compared to top performers in the category. Moreover, the fund has underperformed the benchmark index BSE 100 across time frames. Over a 3-Yr time frame the fund has clocked a 22.6% CAGR, as against 26.9% CAGR delivered by its benchmark - BSE 100.
When assessed on the volatility front, UETSP has exposed its investor to lower risk (as revealed by its Standard Deviation of 6.60%), and has been partially successful in clocking attractive risk-adjusted returns (as revealed by its Sharpe Ratio of 0.20) as well, which is at par with the Sharpe ratio of its benchmark. However the same looks average when compared with that of some of the top performers in the category. This thus makes UETSP a low risk- low return investment proposition when compared to its peers.
Fund Manager Profile
| Name of the Fund Manager | Ms Swati Kulkarni |
| Total Work Experience | Over 13 years |
| Managing the fund since | Aug-04 |
| Qualifications | B.com, Masters in Finance, CFA |
As seen above the performance of UTI Equity Tax Savings Plan has been quite middling. we recommend that, investors would be better-off avoiding UTI Equity Tax Savings Plan and thus may instead invest in an ELSS fund which has a good performance track record and since it comes from the stable of a fund house having strong investment processes and systems.
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.
Happy Investing!!
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