DBS Chola Tax Advantage Fund – Series I

We are currently faced with unprecedented global financial crisis. The fall of large institutions and housing crisis in US has resulted in collateral damages globally. The slowdown has been witnessed in India which is reflected in decline in export growth, real estate demand, commodity prices and slowdown in several industries. To deal with the current crisis and to provide impetus to economic growth Government has taken several initiatives like reduction in interest rates, providing banks easier access to liquidity and fiscal stimulus package.

An opportune time …We believe that with correction in the market, global meltdown and slowdown in the economy, we are currently positioned at a point similar to April – Sept. 2003 on following parameters:

  • Economic cycle: The industrial production growth was around 6% during April – Sept. 2003 and the IIP numbers are in similar range during April – Sept. 2008
  • Valuation: The trailing P/E multiple during April 2003 was hovering around 10x and same is the case currently.
  • Sentiments: Investors were averse to investing in the market and easy credit was made available to kick start the economy. Government has taken initiatives to improve credit offtakes.

Wealth creation through ‘Value Investing’In light of the above DBS Chola Mutual Fund has launched DBS Chola Tax Advantage Fund – Series 1 to take advantage of current market condition by adopting the approach of “Value Investing”. We define “Value Investing” as buying stocks of company with strong management capabilities where Traded prices are at a discount to their value of assets OR There is a potential of high dividend yield or earning yield.

Criteria Primary criteria for choosing the stocks for ‘Value Investing’, Price to book value less than that of BSE Sensex OR Earnings yield (inverse of P/E) higher than that of BSE Sensex OR Dividend Yield higher than that of BSE Sensex How did ‘Value Investing’ fare in the past? Using March 2003 as a reference point, we back tested our “Value Investing” strategy and saw the results of the portfolio as on Nov., 2008. Out of 200 stocks of BSE 200 Index we applied the above criteria to build a model portfolio of 60 stocks which gets classified as “Value Stocks” .

Passive strategy: We kept the portfolio intact for the entire period (2003 to 2008)

Active strategy: We applied same screening parameters and churned the portfolio at the end of each financial yearfrom March 03 to March 08 in the new sets of stocks in equal proportion.

Past performance may or may not be sustained in future. Strictly for illustrative purpose only. Therefore, ‘Value Investing’ strategy with appropriate criteria as defined, has resulted in out performance over a period of time.

Introducing DBS Chola Tax Advantage Fund – Series I DBS Chola Tax Advantage fund is a close ended Equity Linked Savings Fund which will use “Value Investing” as its investing approach for building a portfolio.
Are we investing for the short term or is our horizon longer? In the current times, to reap benefit, we need to look at the long term outlook on equity, preferably over 3 years, rather than the short term.
Why invest in a close ended product rather than an open ended one? Both have their advantages. But if we are creating a portfolio based on a strategy, it is better to allow some time for the portfolio to realize its potential. The DBS Chola Tax Advantage Fund Series 1 is a 10 years close ended scheme with redemption facility after a compulsory lock-in period of 3 years.
What is unique about DBS Chola Tax Advantage Fund – Series 1? As on date, it is the only fund that follows a “Value Investing” strategy and also gives tax benefit.
Who should invest? Investors who wish to benefit from our strategy of "Value Investing" in selection of Stocks, Investors who believe that over medium to long term equity funds has the potential to provide superior returns compared to other assets classes/investment avenues, Investors who wish to take benefit under section 80C of the Income Tax Act, 1961.

Investment Objective: The investment objective of the Scheme is to seek to generate long term capital growth from a diversified portfolio of predominantly equity and equity-related securities and also enabling investors to get Income Tax rebate as per the prevailing Tax Laws and subject to applicable conditions. Investment Pattern: Equity & equity related instruments 80- 100%, Debt Securities and money market instruments 0 – 20%. Options for investment: Growth and Dividend Options. Minimum Amount for Application during the NFO period: Rs. 500/- and in multiples of Rs. 500 thereafter. Applicable loads: For amount < Rs. 2 cr. Entry load: 2.25%, Exit load: Nil, For amount >= Rs. 2 cr. Entry and Exit load: Nil. Benchmark index: BSE 200. Liquidity: The Scheme is a Close- ended Equity Linked Savings Scheme. Redemptions can be made only after a lock-in period of 3 years from the date of allotment of the units proposed to be redeemed, at NAV based prices. Tra! nsparency: The Scheme’s NAV will be available on all Business Days at the Authorised Investor Service Centres.

, ,