Daylynn Gerald Paul Pinto, Fund Manager, IDFC Tax Advantage Fund says, we primarily invest in growth companies
What is the investment strategy for the fund?
IDFC Tax Advantage (ELSS) fund 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 growth potential of the respective industry and interaction with company management keeping an investment horizon of two to three years in mind.
What is included in the portfolio and what is avoided?
We seek out stocks that are under appreciated by the market relative to their peer group and the company's earning potential. We 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 utilisation. Additionally, our focus would be on businesses where management focuses on return on invested capital (ROIC), cash flow generation and prudent capital allocation.
What is avoided: Managements that do not respect capital and companies with excessive 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 three year lock-in. While subscription is open throughout the year, the investment is locked in for three 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 three 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 years, the fund has missed out on the opportunity to participate in the strong performance of NBFCs and some IPOs. We continue to invest in businesses that fit into our philosophy and the specific objectives of the fund.