Picking And Preserving

Strong businesses and successful businessmen have always fascinated Ashwani Kumar, fund manager at Reliance Mutual Fund. Kumar may not admit it, but if he had a grand wall, he’d have put up posters of Kiichiro Toyoda, Henry Ford and Soichiro Honda.

“These are great men who built great companies,” he says. “Their pursuit of excellence, passion for creating strong businesses, people management skills and long-term thinking are worth reading about.”

It is perhaps this understanding that makes Kumar a stickler for quality companies. “I like to include only well-managed companies in my portfolio. I like to buy good quality companies and hold them long for capital appreciation,” he says.

The buy-and-hold strategy has worked well for Kumar, who manages the Rs 4,155-crore Reliance Tax Saver Fund. The portfolio has generated more than 36 per cent returns over a three-year period. The fund tops Morningstar’s ELSS category, closely followed by Axis Long-Term Equity and Birla Sun Life Tax Relief Fund.

“We bought a lot of MNCs which were on offer at good price points last year. Many of these stocks have appreciated too… Our idea is to pick good quality stocks and hold them for long-term alpha creation,” explains Kumar.

Tax-saver schemes are popular among investors who desire to save on their tax payouts. Investments of up to Rs 1.5 lakh in a financial year in these funds are exempt from income-tax under Section 80C of the I-T Act. But investments in ELSS are subject to a lock-in of three years from the date of investment.

“Three-year lock-in makes the fund a bit more stable. It gives the fund manager enough time to structure a solid portfolio,” says Kumar. “But this advantage is only there for the first three years after launch. Post that period, the fund becomes open for the first set of investors.”

“We’ve not seen much churn (in this portfolio) as investors who park their money in tax-savers do it for a reason and with a long-term view,” adds Kumar.

Between 2006 and 2014, Reliance Tax Saver has underperformed its benchmark only on two occasions — in 2008 and 2011. In all the other years, the fund has outpaced key benchmarks in the 20-70 per cent range.

Reliance Tax Saver has invested in excess of 20 per cent of its corpus in automobile and engineering companies. The fund’s strategy of betting heavily on mid- and small-cap stocks has paid off handsomely in times of bullish markets.

“A good part of the portfolio has appreciated 60-70 per cent over the past two years,” says Kumar. “Industrials, auto companies and component manufacturers created alpha in the fund.”
 
Following the lives of successful businessmen and businesses has certainly paid off for Kumar.

(This story was published in BW | Businessworld Issue Dated 20-04-2015)