Launched in April 1999, Franklin Taxshield Fund has been ranked CRISIL Fund Rank 1 for the quarter ended December, in the Equity Linked Savings Scheme (ELSS) category. The fund has remained in the top 30 percentile of the peer group (CRISIL Fund Rank 1 and CRISIL Fund Rank 2) for the past four quarters.
Being an ELSS fund, it benefits investors as investments in such schemes are eligible for deduction up to ~1 lakh under Section 80C of the Income Tax Act. However, these benefits might not continue if the Direct Taxes Code (DTC) becomes applicable in April 2012, as ELSS funds will not attract tax exemption under the DTC.
The fund's quarterly average assets under management (AUM) have been around ~800 crore for the past five quarters. For the quarter ended December 2011, the fund's AUM was ~769 crore.
Performance The fund has outperformed both its benchmark (S&P CNX 500) and the category across various time periods. It has managed to outperform both the category and benchmark over both six months (absolute) and one year time frames when the equity market saw a volatile market phase.
This is mainly due to active management of equity and sector exposures during this period. Over a longer time frame of 10 years, the fund has given an annualised return of 24 per cent vis-à-vis 22 per cent of the category and 19 per cent of the benchmark. An investment in the fund since inception would have resulted in the value increasing 21 times, resulting in an annualised growth rate of 27 per cent.
The fund has largely maintained lower volatility (risk) than both the category and the benchmark over the past five years when considered on a monthly basis. Thus, the fund has generated higher returns by taking lower risk vis-a-vis category and the benchmark.
Portfolio analysis The fund has predominantly invested in large-cap stocks over the past three years. Its exposure to CRISIL defined large cap stocks has been 78 per cent over this time period. The balance 22 per cent has been invested in small- and mid-cap stocks. The fund is well diversified at the stock level with an average holding of 49 stocks in its portfolio over the past three years, with none of the holdings exceeding nine per cent over this period. A diversified portfolio helps mitigate the risk of concentration.
The fund has maintained higher equity exposure compared to the category over the past three years. The average equity exposure of the fund over this period is 94 per cent vis-à-vis 91 per cent for the category. It has reduced equity exposure over the past one year by maintaining a relatively low equity exposure compared to the category.
This has helped the fund limit its downside in returns over the past year. However, the fund has gradually increased its equity exposure over the past quarter.
In terms of sectors, the fund has reduced exposure to underperforming sectors, such as banks and petroleum products over the one-year period ending December 2011. These sectors had given negative returns of 31 per cent and 29 per cent, respectively, vis-àvis the benchmark's negative 27 per cent during this period.
These sectors were among the top sectors of the fund when considered over the past three years. Simultaneously, it has increased exposure to relatively better-performing sectors, such as auto and software. Actively managing exposure to sectors has helped the fund generate higher active returns or alpha.Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
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