26, Mar, 2019
This little-known tax plan beats every other ELSS fund; should you invest?

This little-known tax plan beats every other ELSS fund; should you invest?

A tiny small equity fund, from an equally tiny fund house, appears to have come out from nowhere and is setting the charts on fire. As on January 16, 2019, Quant Tax Plan (QTS) gave the best returns in the past 5-year period with a 21.25% return.

Over the past 3-year period, it returned 17% return; the third best return among all tax-saving mutual fund schemes. Between the years of 2014 and 2018, it gave top quintile return in all years except one (2017). At just Rs.8.2 crore (as on the end of December 2018), this scheme is making heads turn also because the tax season is on and investors are rushing to make last minute investments in tax-saving vehicles. What is this scheme all about and should you invest in it?

Leaving a sedate past, behind

Quant Money Managers is one of the India’s smallest fund houses that manages equity and debt schemes, including QTS. The fund house was earlier called as Escorts Asset Management Ltd, a Delhi-based fund house from the house of Escorts, which was launched in December 1995. The fund house was set by Escorts Finance Ltd, a non-banking finance company, part of the Escorts Group that manufactures tractors and farm equipment.

While most of the Rs.23.61 trillion Indian mutual funds (MF) industry is headquartered in Mumbai, Escorts AMC was the rare fund house that was based out of Delhi. With its overall corpus size hovering around Rs 200 crore for many years, it has been one of India’s smallest fund houses.

In 2015, Sandeep Tandon, founder of Quant Group, an institutional brokerage firm acquired a token stake of 9% in the fund house, in his individual capacity. Apart from being an institutional broking firm, Tandon’s firm also managed money for high net worth families and family offices.

In December 2017, the Escorts Group decided to exit the Indian MF industry. The capital market regulator, Securities and Exchange Board of India gave it preliminary approval in October 2017, Tandon’s group took control of the fund house checked in and renamed the fund house to Quant Money Managers in February 2018, Sebi’s final approval came in June 2018 and the fund house marched on.

Active management with a twist

Tandon’s involvement with the fund house has woken it up from its slumber. Like all its equity fund, QTS is actively-managed. But one look at QTS’s portfolio tells us that it is managed, perhaps more, actively than most other equity funds. Like all other actively-managed schemes, QTS also relies on companies’ balance sheets and annual results to track their fundamentals. In addition, Quant has developed multiple data points to track factors such as valuation, liquidity and risk that, Tandon, says affects the share prices of companies.

For instance, QTS reduced its holding in HDFC Bank sharply in the month of December 2018 where most other equity schemes held on to the stock or tinkered with the holding marginally. QTS’s holding in HDFC Bank was at 3.84% of its corpus in December 2018, down from 7.90% in November 2018.

Apart from three fund managers and four analysts, the fund house also has four people, part of its fund management team, which looks at analytics; numbers and statistics that aim to predict market and companies’ outcome.

QTS stayed away from Hindustan Unilever throughout 2018 but bought a small quantity of its shares (2.98% of its corpus) in October 2018. It sold the shares in November and then again bought it (5.16% of its corpus) in December 2018.

“We do not stick to investing in stocks as per our benchmark index. If our data points prove that there is excessive risk in the making, for any of our holding, we do not hesitate in removing it from our portfolio. The fund house is actively managed; we do not necessarily buy-and-hold”, says Tandon, founder of Quant Group.

He adds that apart from studying the company’s financials (much like any other fund house), the firm relies “heavily” on its data analytics, more than meeting with company managements to judge the companies’ future.

Despite avoiding stocks like Kotak Mahindra Bank and IndusInd that did exceedingly well in 2018, QTS gave a top quintile performance in 2018. It held Kotak Mahindra Bank briefly between July and September 2018. It also held less than 2% in IndusInd Bank February and July 2018.

Since early 2017, QTS has consistently reduced its exposure to small-sized companies and in 2018 it cut its exposure to mid-sized companies. QTS holds a concentrated portfolio of about 30-35 stocks on account of its small size.

Should you invest?

These are early days but QTS and the rest of the fund house holds promise. Tandon says that the scheme aims to be a consistent performer rather than being ranked at no.1.

“The scheme’s performance is good, despite avoiding some of the best performing stocks in 2018. However, it remains to be seen if this strategy works when its size grows. “Its current size of Rs 8 crore is fairly small which makes the scheme agile and nimble footed”, says Roopali Prabhu, head of investment products, Sanctum Wealth, a boutique advisory firm.We need to see its consistency over time. Besides, its size, as Prabhu rightly points out, is too small. If you wish to invest in a tax-saving mutual fund this year, we suggest you avoid QTS for now. Take a look at other schemes that come with a longer track record.