Read the article to know what should investors do with investments in Reliance Tax Saver Fund as the ratings have been dropped to the lowest levels.
Reliance Tax Saver Fund which is considered as one of the most volatile tax saving schemes, has been unable to do well in the last few years. Following the continuous under-performance, the rating agencies have lowered the ratings of Reliance Tax Saver Fund to 1 star. Investors have been facing low-key returns for the last few years as the fund has been unable to cross the benchmark for the last 5 years. The fund still holds a significant 12 digit AUM as the investors are hopeful of positive trends in the long term. Read till the end to know what can be the ultimate decision for the investors in Reliance Tax Saver Fund.
About Reliance Tax Saver Fund
This is an ELSS mutual fund which allows tax deduction of up to Rs 46,800 every financial year. The fund invests 100% of the corpus into equity instruments and the portfolio is aggressive due to higher involvement of small and mid-cap stocks. The fund has been under-performing due to rough market conditions for the small and mid-cap segment of the economy. Despite constant pressure from the market, the fund manager hasn’t changed the stance and still believes in the aggressive portfolio. The fund has the ability to deliver high returns in the favourable market conditions but currently, questions have been raised due to constant under-performance and the ratings have been downgraded.
What Lies Ahead for Reliance Tax Saver Fund?
Reliance Tax Saver Fund is currently providing lower trailing returns than benchmark and category average for 1 and 3-year cycles. The returns for last 1 year have been even lesser than the bank deposits however market conditions are majorly responsible for the same. Despite severe downsides, the manager has continued with the aggressive portfolio and the concentration in the top stocks have been increasing for a while. The investment style highly deviates from the benchmark as overweight can be observed on the automobile, engineering, and metal stocks. The approach of fund manager might be risky but once the recovery mode begins for the mid and small-cap stocks, tremendous growth can be expected from the scheme within a short spell.
What Should Investors Do?
The ratings have been downgraded due to recent performance but outstanding returns can be expected from the scheme under suitable market conditions. Those investors who cannot take high risk are advised to stay away from the scheme and should withdraw after the completion of the lock-in period. Those who are planning a fresh investment and have moderate to high-risk appetite can also look for alternatives in the tax saving category of mutual funds. However, aggressive investors who seek very high returns and can stay invested for a long term for that can consider investing in Reliance Tax Saver Fund.
Tax Benefits From Reliance Tax Saver Fund
As per the Income Tax Act of 1961, any amount invested in Reliance Tax Saver Fund up to a maximum of Rs 1.5 lac per year will be directly deduced from the taxable income of the investor. This allows tax benefits of up to Rs 46,800 every financial year and the invested amount is redirected to pure equity stocks which generate capital appreciation to the investors. The fund allows investment through SIP as well as a lump sum and the monthly investment option allows most convenient tax planning in India.
The Ratings of Reliance Tax Saver Fund have been dropped to the lowest levels but it still holds significant corpus. Investors are advised to switch to a different ELSS fund for better returns. Although those who can take high risk and are hopeful for mid and small-cap recovery can stay invested in the scheme to gain exponential returns. It is a high-risk fund and must be chosen by aggressive investors.