Our interaction with Daylynn Gerard Paul Pinto, fund manager, IDFC Tax Advantage Fund
What is the investment strategy for the fund?
IDFC Tax Advantage (ELSS) fund will primarily invest in growth companies that are available at reasonable value. The fund would invest across market capitalizations in companies which would be identified through a systematic process of forecasting earnings based on a deep understanding of the industry growth potential and interaction with company management keeping an investment horizon of 2-3 years in mind.
What is included in the portfolio and what is avoided?
The portfolio would invest in businesses where management focuses on Return on Invested Capital (ROIC), cash flow generation and displays prudence in capital allocation. We would also look for companies with good operating leverage i.e. companies which have set up capacities and are yet to reap the benefits of higher utilization.
What is avoided: Companies where in managements that do not respect capital and companies with high financial leverage
Tax planning funds have a different redemption pattern given the three year lock-in compared to the diversified equity schemes. How much does this factor play a role in fund management and investment? Does it have any bearing on cash allocation?
Tax portfolios are similar in many ways to other equity portfolios, but have a 3-year lock-in. While subscription is open throughout the year, the investment is locked in for 3 years. Though most of the investments happen in the last quarter of the financial year, the redemption pattern doesn't necessarily mimic the investment pattern. The 3-year lock-in does allow us to invest in companies with a longer term horizon as daily liquidity requirements are usually lower.
Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?
Over the last year, the fund has missed out on the opportunity to participate in Oil & Gas sector performance. We are currently looking at businesses in this space and would increase weightage when an attractive opportunity arises. We continue to invest in businesses that fit into our philosophy and the specific objectives of the fund.