ELSS (Equity-Linked Savings Scheme) funds are offered by several banks and financial institutes. These are tax-saving mutual funds that can save up to 46,000 INR upon investing 1.5 Lac INR under section 80c of Income Tax Act. Tax saver funds invest in equity and equity-related instruments and usually have a higher annual return rate compared to other tax saving investment options under section 80c such as Provident Funds and National Pension Scheme. There are a lot of such funds available in the Indian market. Mirae Asset Tax Saver Fund is an ELSS fund that has been performing in the top 10 tax-saving mutual funds consistently through its strategic investment planning and diversified portfolio. Allocation of the assets plays an essential role in fund performance and liquidity. Keep reading to know more about the asset allocation strategy of the Mirae Asset Tax Saver fund that puts the fund on the top of the charts.
Asset allocation is partitioning the total fund asset into instruments of the fund’s portfolio such as equity shares, debt securities, money markets, etc. It implements the investment strategy of the fund while balancing the risk vs return. The below image shows the risk-o-meter of the Mirae Asset Tax Saver fund.
Mirae Asset Tax Saver Fund Product Labelling. Source: Mirae Asset Web Page
Insights on the allocation of assets in the Mirae Asset Tax Saver Fund
MATS Fund Asset Allocation:
Under normal circumstances the asset allocation of Mirae Asset Tax Saver Fund will be as follows:
MATS fund predominantly (80%-100%) invests in Equity and Equity Related Instruments. MATS fund also invests a small portion of assets (0%-20%) into Debt Instruments, Money Market Instruments, Cash, Reverse Repo, etc. Currently, 98.4% of assets are invested in Equity, 0% of funds in Debt, 1.6% of assets in other instruments.
Equity and Equity related instruments:
Equity and Equity related instruments include convertible preference shares, convertible debentures, equity warrants, etc. The risk profile for these investments will be high, the MATS fund currently invests 98.4% of the fund in Equity. This asset allocation increases the chances of high returns. Top 10 Equity holdings of MATS fund as of March 2020 include:
- HDFC Bank Limited – 9.6 %
- Reliance Industries Limited – 8.6%
- ICICI Bank Limited – 6.6%
- Infosys Limited – 6.3%
- Tata Consultancy Services Limited – 3.6 %
- Larsen & Toubro Limited – 3.6 %
- State Bank of India – 3.6%
- ITC Limited – 3.4%
- Axis Bank Limited – 3.1%
- Maruti Suzuki India Limited – 2.9%.
All of the companies above belong to Large Market Capitalization, which improves the consistency in the performance of the fund.
Debt, Money Market and Other Instruments:
MATS fund also invests 0% to 20% into Debt securities of Govt of India and state governments, Public Sector Banks, Private Sector Banks, Financial Institutes, etc. However, MATS fund currently does not have any holdings in Debt related securities, Debt instruments may be beneficial for rather a short term investing. Mirae Asset Tax Saver Fund’s strategy takes the risks associated with Debt Investing such as interest-rate risk, reinvestment risk, credit risk, liquidity risk, etc.
Instruments that MATS fund does not invest in:
According to the Scheme Information Document, Mirae Asset Tax Saver Fund shall not invest in derivative instruments, securitized debt, equity-linked debentures and foreign securities due to limitations on the ELSS scheme.
Mirae Asset Tax Saver Fund asset allocation and investment decisions are made by the Fund Manager and the in-house Investment Committee. Risk control and credit analysis are done by the Risk Management team. The investment objective of the scheme is to generate long-term capital appreciation by investing predominantly in Equity and Equity related instruments. However, the scheme does not guarantee or assure any returns.