Look at ELSSs as an investment option for long-term goals, says Saurabh Kataria of BOI AXA Tax Advantage Fund

With around 47 per cent returns in the last year, BOI AXA Tax Advantage Fund tops the performance chart in the Equity Linked Savings Scheme (ELSS) category. ET.com Mutual Funds spoke to Saurabh Kataria, fund manager of the scheme to find out how he managed to achieve the feat.

BOI AXA Tax Advantage Fund is more than 10 per cent points ahead of many reputed peers in the category. What made this possible?
I have been managing this fund for about four years now and we have been following a two-step investment process – a combination of top-down to identify the best sector and bottom-up to find the best companies to invest within those sectors. It’s a fairly simple strategy to identify companies in a secular uptrend. We look at sectors with tail-winds and which are likely to perform better on a relative basis. To identify companies within these preferred sectors, we have certain screeners and parameters that we follow. For instance, we focus on the fastest growing companies, the companies with the highest ROEs, companies showing sustainable growth – this forms the fundamental basis of our stock picking.


The scheme has a large exposure to mid and smallcap stocks. Are you positioning the scheme for aggressive investors?
Inherently, the ELSS schemes come with a mandatory lock-in period of three years. This feature allows the fund manager to go slightly longish-term without really worrying about redemption. We wanted to bet on companies with are small and mid-sized right now but had the potential to become largecap in the future. We have never been biased about a particular size of companies. In 2013, when I started managing the fund, it was predominantly a largecap-oriented fund that time. That was because we didn't see lucrative opportunities in the mid and smallcap space that time. Now, we are over-weight on mid and smallcaps because of the kind of opportunities we are getting. We generally have a quality bias. We try and avoid the 'flavour of the season' kind of things.

Most mutual funds are betting big on largecap stocks because mid and smallcap stocks are considered to be extremely overvalued. How do you view the situation?
We generally try to avoid calculating valuations on an index basis. On an aggregate bias, you will have companies that are not growing that fast but because of their inherent nature, the valuations are higher. So, we look at valuations more on an individual company level. We necessarily compare the valuation to the potential of the company over the next five to ten years. We believe that these companies will continue to outpace growth with minimal capital requirement.

Also, there are companies which are growing at 5-8 per cent and are trading at 15 times, which might be optically inexpensive with the index at 18. But the point is that the earnings growth does not justify the valuations. The market is paying a premium for growth. In some pockets it has become a little overheated, but wherever there is some room, we are trying to find opportunities in that area.

The scheme seems to be bullish on engineering and financials. Which are the other sectors that you are betting on?
We are biased towards the private sector financials. We believe that this opportunity is fairly large and we are still a long way to go. Secondly, speaking about the engineering and chemical stocks, this is positive after the shut down that happened in China. We have been hearing for the past some years that China is shutting down capacity. Only in the last six months, we started seeing actual data where you could see Chinese exports in commodities, like steel, chemicals, industrial consumables, etc come down. This has a trickle down effect on a lot of Indian companies in these sectors.

So we now have one big competitor off the market. So that's where we expect some action. A number of companies are in the informal set up right now but with the formalisation of the businesses, we see a lot of opportunities. These companies might appear expensive right now but we have to compare that to the amount of growth opportunities they possess.


Despite an impressive performance, the scheme is yet to become a household name. Your AUM is also quite small. What are you doing to promote the scheme?
Prior to the merger with Bank of India, we used to be Bharti AXA. In 2012-13, post the merger, we dwindled down to an AUM of approximately Rs 120 cr. We now manage about Rs 5,300 crore and have built a track record of exemplary performance across our funds. Apart from our performance, we are doing a lot of investor seminars, where we explain why we are doing better than peers. We are also trying to reach out to various distribution partners to get more penetration.

What would you advise investors getting to the scheme at this point? What should be their investment strategy?
The basic strategy that I would ask the investors to follow is that, don't consider ELSS to be just an instrument for tax-saving. The ELSS category has been one of the best performing across equity fund categories. Because it has tax-saving benefits, most of the investments happen during this December-March period. I would suggest investors to look at ELSSs all through the year as an investment option for your long-term goals and not only as a tax-saving instrument.