DSP Tax Saver Fund review: Is it a worthy tax saver?
DSP Tax Saver Fund seems to be a consistent performer in the category. Continue reading to understand the performance of the fund.
DSP Tax Saver Fund is the scheme that seeks to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity-related securities and enables investors to avail deduction under section 80C of the Income Tax Act. The fund consists of 53 stocks which is quite near to its category average of 49. It is benchmarked against the Nifty 500 Total Returns Index (TRI).
In this post, we would be reviewing this fund from different angles that will help the investor make better investment decisions.
How does the fund perform?
To understand the fund’s performance, we have compared its three-year rolling returns as against its category average. The period of study ranges from December 2011 to November 2021.
The above two graphs give an idea about the performance of the DSP Tax Saver Fund against the Equity Linked Saving Scheme (ELSS) category. As can be seen in the first graph, DSP Tax Saver Fund has consistently outperformed its category. The underperformance as compared to the category average is negligible. In fact, in almost 1,742 three-year rolling returns observations, it only underperformed the category average only once that too by 0.01 per cent. This means that at all times DSP Tax Saver Fund was successful in beating its category.
Let us now look at the performance of the fund against its category based on parameters such as median, minimum and maximum returns of three-year rolling returns. The results are quite encouraging as the fund scored over its category average in terms of median and maximum returns and in the case of minimum returns it just matched the performance of the category average.
The good part is that, in any three-year rolling period, almost 47 per cent of the time it gave returns between 10 per cent to 20 per cent, while 32 per cent of the time it generated returns between 20 per cent to 30 per cent. This means that almost 79 per cent of the time it gives returns between 10 per cent to 30 per cent. So, with this fund, there are high chances that you would be able to beat inflation in the long run.
Note: The data used to calculate the performance of the fund and category is of the regular plan.
How risky is the fund?
To understand the risk undertaken by the fund against its category, we have assumed the maximum drawdown as the primary parameter. However, we have a holistic view, we have also compared its standard deviation, downside deviation, Sharpe ratio and Sortino ratio with that of category average.
As we can see that the above two graphs show the risk metrics of the fund alongside its category. The maximum drawdown of DSP Tax Saver Fund is similar to the category average and is not one of the lowest in the category. However, it has most of the time fallen less compared to the category average. In last 10 years, it only depicted drawdowns 86 per cent of the time whereas the ELSS category on average showed a drawdown 99 per cent of the time.
Moreover, its standard deviation and downside deviation is marginally less compared to its category. In terms of risk, the fund just matches its scores with the category average. This means in terms of risk DSP Tax Saver Fund is a risky bet and is certainly not for the faint-hearted people.
Final Thoughts
This fund has certainly performed really well compared to its category in the long run. To understand this, we took three-year rolling returns of the data ranging from December 2011 to December 2021. However, when we look at the risk part, the story completely changes, as in terms of risk DSP Tax Saver Fund takes risk which is similar to the category average. This shows it is indeed a volatile fund and carries a higher risk – a high return profile.
Therefore, this is for sure that this fund is not meant for conservative investors. Although, conservative investors can take exposure to this fund to add zing to their portfolio, but should not invest more than 10 per cent of their overall portfolio.