Want to take a really long-term bet? Sundaram Mutual Fund has launched a fresh series of Long Term Tax Advantage Fund. The Series VI, like the previous ones, is a close ended equity linked saving scheme with a statutory lock-in of three years and provides a tax benefit. The first series (I) was launched in March 2015. The latest offering, whose units are available at Rs 10 during the new fund offer period, closes on December 24. These offerings have a tenure of 10 years, with the maturity date reckoned from the date of allotment. RupeeIQ decodes the NFO for you.
Scheme type – This is a close ended equity linked saving fund with a statutory lock-in of three years and tax benefit. This means like any other close-ended scheme, the desired returns are aimed to happen only at the scheduled maturity of the scheme. You cannot buy units again either through subscription or switch-in after initial allotment. Redemption of units under the scheme is available only after the three year lock-in period from the date of allotment of units.
Previous series – The Sundaram Long Term Tax Advantage Fund Series I is a Rs 21 crore fund. The Series II is a Rs 24 crore fund. The Series III is slightly bigger at Rs 43 crore. Series IV is a Rs 28 crore scheme. There are some common stocks across some series. For example, the top holdings of Series I and Series II are Infosys, RIL, ICICI Bank, ITC and Tech Mahindra with slight difference in stock weights. These clearly have a large-cap bias. The next Series III and IV seem more mid-cap oriented with common top holdings such as MM Forgings, Ashoka Buildcon, Thyrocare, TCNS Clothing, JM Cement, Sundaram-Clayton etc.
|Previous offerings||AUM Rs Cr||Launch Date:||Maturity date||Return since inception % (*)|
|Sundaram Long Term Tax Advantage Fund Series I||21||Mar 26, 2015||Mar 26, 2025||7.5|
|Sundaram Long Term Tax Advantage Fund Series II||24||Mar 21, 2016||Mar 23, 2026||13.4|
|Sundaram Long Term Tax Advantage Fund Series III||43||Mar 27, 2018||Mar 28, 2028||-17.2|
|Sundaram Long Term Tax Advantage Fund Series IV||28||Jun 27, 2018||Jun 29, 2028||-3.64|
|* – Returns more than a year are in terms of CAGR|
Asset allocation – The Sundaram Long Term Tax Advantage Fund Series VI will have a minimum 80% in equity & equity related securities and a maximum of up to 100%. Equity-related securities include cumulative convertible preference shares, fully convertible debentures and fully convertible bonds of companies.
The scheme being an ELSS fund will adhere to the requirements of Equity-Linked Savings Scheme (ELSS), 2005 notified by Central Government. This is why under normal circumstances, a minimum of 80% of the funds of this scheme will be invested in equities or equity related instruments. Do remember the scheme will not invest in securitised debt, ADR/GDR/Overseas Securities, nor engage in securities lending and short selling.
Investment amount – For both regular and direct plan , the minimum investment amount is Rs 500 and multiples of Rs 500 thereafter.
Fund managers – S Krishnakumar and Dwijendra Srivastava
Benchmark – S&P BSE 500 Index
Entry and exit load – Nil
Entry strategy – The money collected from investors is deployed only after the end of the NFO period. During the NFO period, it has the leeway to invest in CBLO (collateralized borrowing and lending obligation) based instruments.
Exit strategy – Close-ended funds are essentially trying to time markets. They collect the money from you and invest according to the investment mandate and asset allocation. While they can book profits when stocks do well, the one common maturity date for all investors means that the fund has to time its exit really well. Close-ended schemes may be required to liquidate the equity portfolio and the proceeds may be kept in cash during the last six months of the tenure of the respective series of the scheme. So, to that extent, these investments may not be during the last 5-6 months.
Legal issues with redemption if original investor dies – Since the maturity is 10 years, some aged investors may expire before the scheme matures. In the event of the death of the assessee, the nominee or legal heir shall be able to withdraw the investment only after the completion of one year from the date of allotment of the units to the assessee or anytime thereafter.
Taxation aspect – Sundaram Long Term Tax Advantage Fund Series VI is an ELSS fund. So, you can get Section 80C tax benefits.
In terms of capital gains on the fund, any Long term Capital Gains (LTCG) over Rs.1,00,000/- per year on sale of units will be taxed at 10%. Short term capital gains on such units will continue to be taxed at 15%.
RupeeIQ take – The Sundaram Long Term Tax Advantage Fund Series VI is appropriate for investors who have a moderately high risk-appetite. They should understand the risks involved in close ended equity funds. Close ended funds typically adopt an aggressive approach in order to seek to optimise returns. If your equity exposure is generally 60% or more out of the entire pie, this scheme is a good alternative. Unless you have a lot of equity exposure, a differentiated strategy like close ended funds is unlikely to move the needle in terms of overall portfolio returns.
Disclaimer: Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.