Why invest in axis long term equity funds?

Axis long term equity fund is one of the most coveted equity-oriented mutual funds, which offers tax benefits under section 80C. It has stayed on top of the game irrespective of the market cycle. The fund has consistently outperformed the benchmark of the past 2 years with a brief lull only over the past quarter as the market remained choppy with a downtrend. Here we review this fund and assess its suitability for the relevant investor class.

Investment mandate

The fund like every other equity-linked savings scheme is required to hold an exposure of at least 65% into equity and equity-oriented securities. The fund has a lockin of 3 years and offers tax benefits under section 80C. The fund at present has ~97% exposure to Indian equity stocks with ~65% of the exposure in large-cap equity stocks, 17% to midcap stocks and the rest in smallcap stocks. Given the investment spread, the portfolio with a substantial allocation towards large-cap stocks seems to have a conservative risk approach. Hence, having a moderate risk demeanour as compared to its category peers, however, on an overall basis the fund has equity orientation and hence, as an asset class, it falls in the high-risk category.

Risk – Return profile

The axis long term equity fund return over the long haul are given below:

Period

Trailing returns

Category average

1 Year

16.09%

25.32%

3 Years

16.99%

17.93%

5 Years

15.9%

14.43%

Source: ET Money; Date: 14 April 2022

Over the long haul, the axis long term equity fund returns have outperformed the category average. The fund operates with a Sharpe ratio of 0.71 and a beta of 0.88. Given the large-cap exposure, the fund is poised to outperform given the current market prospects. They tend to offer stability to the market during a downtrend. They may not necessarily post supernormal profits during the uptrend.

Cost and Taxability

The fund operates with an expense ratio of 0.77% and an exit load of 0%. The expense ratio of this fund is much lower than that of most other ELSS funds. The fund size is approximately Rs. 32, 053 crores. The fund is benchmarked against Nifty 500 TRI.

The Axis long term equity fund qualifies for tax benefit under section 80C. The maximum limit available for tax deduction under section 80C is Rs. 1.5 Lakh.

The axis long term equity fund is assessed under capital gains, since there is inherently a lockin of 3 years, any sale of the fund post the lockin will be assessed under long term capital gains. However, the holding period of long term capital gain assessment is 12 months or more. The capital gains of up to Rs. 1 lakh a year are tax–exempt. Any amount in excess of Rs. 1 lakh will be assessed for tax at 10%.

How to invest in Axis long term equity fund?

You can invest via a one-time purchase or a systematic investment plan. The minimum investment via lumpsum mode is Rs. 500. The systematic investment plan can be initiated with a minimum of Rs. 500. Here is an illustration of how Rs. 10,000 lumpsum investment would have grown in value vis-à-vis Rs. 1000 SIP invested for 3 years.

Rs. 10,000 invested for the period mentioned below:

Period

Latest Value

Absolute Returns

Annualised returns

1 Year

11542.70

15.43%

15.43%

3 Year

15752.70

57.53%

16.32%

5 Year

19868.40

98.68%

14.71%

10 Year

55020.00

450.20%

18.58%

Date: 13 April 2022

Rs. 1,000 per month invested for the period mentioned below:

Period

Latest Value

Absolute Returns

Annualised returns

1 Year

11961.07

-0.32 %

-0.6%

3 Year

46941.51

30.39%

18.01%

5 Year

87825.18

46.38%

15.23%

10 Year

289227.01

141.02%

16.76%

Date: 13 April 2022

Suitability

Investment in ELSS funds should be considered from a minimum of a 3-year perspective, however, it is advised that one should look at equity-oriented investments only with at least a 5 – 7 year horizon. It can not only provide optimal returns on your investments which can be aligned to your financial goals but will also provide additional benefits in the form of income tax deductions. It can be a good addition to your portfolio depending on your risk appetite and your financial goals.

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