Nippon India ELSS Tax Saver Fund Payout Income Dist cum Cap Wdrl INF204K01GL2

Although the fund does not have any category-specific portfolio constraints, the fund house has set internal limits that act as guidelines for the fund manager. In line with these precepts, the fund follows a stable approach of leaning toward large caps.

Fund manager Rupesh Patel aims to identify and pick stocks with compounding characteristics and significant potential for growth. He favors market leaders in their respective industries, discounting the notion of mean reversion. It follows that Patel chiefly relies on a fundamentals-based bottom-up approach and is wary of evaluating stocks solely on their relative valuations based on price multiples.

The overall framework is set on a bedrock of risk management. This is to ensure that the fund doesn’t go overboard with respect to taking risk. The fund has set guardrails/ranges to market-cap segments, active share, and sector deviation to large sectors within which it operates. The portfolio also maintains at least half the index weight of the top five index stocks.

At Nippon India AMC, the "Fund Casing" is the primary document that outlines the framework governing a fund's investment profile. It acts as a guardrail to the manager and is supposed to provide inherent stability to mitigate large deviations from the desired performance outcome. The research team internally rates all the stocks under its coverage on a Scale of A (low risk) to D (high risk), by considering business risks and management quality. By placing limits at the portfolio construction stage based on risk rating and continuous monitoring through the Investment Committee and formal fund review meetings in detail, the team tries to keep the risks in check.

Since taking over the fund, Patel has plied the process consistently and delivered pleasing results. That said, we would like to see continuity of the process and execution going ahead, given the historical changes in management style the fund has witnessed in the past. Thus, we assign it an Average Process Pillar rating.

Although the fund is free of any specified investment mandate as per its label, it has an unambiguous large-cap tilt. Over the past two years, the portfolio has continued its trend of holding around 70% to 75% of its invested portfolio in the top 100 stocks by market capitalization.

The manager constructs a well-diversified portfolio of around 60-65 names, which has a fair representation in all market segments and sectors. There are two parts to the portfolio: core (approximately 80%) and tactical (approximately 20%). The core part of the portfolio comprises businesses with compounding characteristics. This sleeve plies a buy-and-hold approach with an extended investment horizon, not driven by short-term earnings surprises. On the other hand, the tactical portion attempts to anticipate event-driven price actions, where the fund manager will typically exit positions once the outcome has crystallized. Typically, this is identified by variations in the growth trajectory of specific companies from their expected long-term growth rate.

Valuations do play a role in terms of identifying entry/exit points or increasing/decreasing existing positions; however, analysis of core fundamentals and a solid underlying thesis are the primary starting point. Cash exposure hovers around 3% and is capped at 5%.