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Kotak ELSS: How good is it?
October 10, 2005
|Type||Open ended tax-plan||Benchmark||S&P CNX 500|
|Min. Investment||Rs 500 ||Face Value||Rs 10 |
|Entry Load||2.25%||Exit Load||Nil|
|Issue Opens||September 29, 2005||Issue Closes||October 25, 2005|
To generate long-term capital appreciation from a diversified portfolio of equity and equity related securities and enable investors to avail the income tax rebate, as permitted from time to time.
*Source: Offer Document
Union Budget 2005-06 gave a huge fillip to the taxpayer/investor. He now has the flexibility of investing across tax-saving options in line with his risk appetite. Without doubt, the biggest beneficiary of this move has been the tax-saving fund (equity-linked saving scheme - ELSS) investor. Tax-saving funds have always been popular with risk-taking investors, but the Rs 10,000 limit was always a dampner for the aggressive investor.
The Budget now allows for a maximum of Rs 100,000 in tax-saving funds; this gives the aggressive investor room to invest in these funds by choice as opposed to default investments in avenues like National Savings Certificate (NSC), Public Provident Fund (PPF) and infrastructure bonds.
Kotak ELSS Scheme is the latest entrant in this segment. Given the indifferent track record of Kotak Mutual Fund's equity funds, we believe that investors should first consider existing tax-saving funds with steady track records like HDFC Tax Saver (80.1% CAGR over 3-year) and Franklin Taxshield (59.5% CAGR over 3-year) before committing tax-saving monies to the NFO.
Kotak ELSS has a mandate to be invested in equities and related instruments up to 80% (of net assets) at any point in time. It has the flexibility to invest across market capitalisations. It proposes to employ the bottom-up investment approach, which means it will first identify the company and then consider other factors. This is opposed to the top-down approach which involves first looking at the economy, then at the sectors that stand to benefit most from the economic strengths and finally at the companies that are best placed to benefit from the potential of the sector. The fund will invest in stocks that are available 'at a material discount to their intrinsic value'.
|Equity and equity-related securities||80-100%|
|Debt and money market instruments||0-20%|
Anand Shah, equity fund manager, holds a B.E. degree from REC, Surat, and a Post Graduate Diploma in Business Management from IIM, Lucknow. He was previously associated with Kirolskar Oil Engines Ltd. as senior engineer before joining Kotak Mutual Fund in 2000.
A long-standing concern (over the past 3-4 years) with Kotak Mutual Fund has been a string of changes at the CIO level. The fluidity has deprived the fund house of a stable fund management strategy. To an extent, that explains why no equity fund from Kotak Mutual has impressed over the 3-5 year time frame. Going forward, we believe that this could be an issue with Kotak Mutual's equity funds including Kotak ELSS, unless it manages to restore a degree of stability at the CIO level.
However if PLCF uses the definition stated in the investment objective (65%-100% in stocks with a market capitalisation of more than Rs 750 crores) for stock selection of large caps, as opposed to that in its sales literature (equal to or greater than Rs 3,500 crores), then there will be a need to review the fund's positioning and performance outlook.
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