In Interview with Outlook Money, Mahesh Patil, Co-CIO, Birla Sun Life AMC introduces BSL Tax Relief ’96.
1. What is the composition of the fund and its stock selection?
BSL Tax Relief ‘96 is a well-diversified fund with a portfolio comprising of around 50 stocks across 18 sectors. The fund strives to maintain its ‘high quality’ by investing in stocks which have superior return ratios and a strong balance sheet.
2. What is the investment universe for this fund?
Birla Mutual Fund has more than 350 stocks available in its investment universe, which again have been selected based on rigorous and in-depth research. The fund follows a bottom up approach for investing while selecting stocks from this investment universe.
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3. Does the three year lock-in help when managing these funds?
Indeed. Tax planning funds like ELSS have a 3-year lock-in period, which prevents any redemption pressure on the fund manager. The 3-year lock-in allows the fund manager to take strategic long-term investment calls without worrying about short-term market volatility or early redemptions. Since the money lies in the fund for long term and equities have a higher return potential over the long term, it works to the benefit of investors as fund is able to deliver higher risk-adjusted returns.
4. How does a stock enter the portfolio of this fund?
The fund mostly follows a bottom up approach in stock selection process. It invests into companies which are reasonably valued and have high growth potential and generally refrains from investing in companies which have high debt on their books and companies which fail to make efficient use of cash.
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5. What is the average holding period of stocks in this fund?
The fund invests in high conviction bets with a long term investment horizon. A stock is ousted only if the fundamentals of the company start deteriorating. Typically, the average holding period of stocks would be 2-3 years.
6. What should an investor expect when investing in this fund?
An investor investing in this fund should come with an expectation that over long-term it has the potential to generate superior returns (being subjected to marginally higher risks) to traditional tax saving investments (under 80C tax exemption) like the bank FDs, PPF and other employee pension schemes. Additionally, under 80 C permissible investment list, ELSS offers higher liquidity (3-year lock-in) compared to other permissible investments which have a minimum 5-year lock-in.
7. What factors have led to the relatively superior performance of your fund in recent years?
The following are key “success mantras” which have been the drivers for fund’s superior performance in recent years.
- The fund tries to remain immune to local and global events by picking stocks which have strong fundamentals and are not majorly affected by those events
- The fund follows a predominantly bottom-up approach to pick winners in good and bad times
- The fund is market cap-agnostic and does not shy away from investing in a compelling business across market caps
- The fund is well positioned to take advantage of gradual recovery in the economy and is optimistic towards niche themes like agri, rating agencies, travel & tourism, media and consumer discretionary spending.
