FRANKLIN INDIA TAXSHIELD – PROTECTS DOWNSIDE
During a tumultuous 2000, the first year of its existence, this fund caught the investors' eye for its returns. When the entire category fell by 23.74 per cent in 2000, this fund delivered 2.11 per cent returns. Huge cash allocations did the trick. During the bearish phases of 2001 and 2002, it fell less than the category average. In 2008, it once again managed to protect the downside and in the third quarter actually delivered 0.23 per cent, when the category average was -5.39 per cent.
The cash allocation was not too aggressive. It averaged at just 6 per cent during this quarter while the large-cap allocation averaged at 76 per cent. Though both the factors helped to some extent, it was the sector allocations that played the important role.
The fund manager does not chase the performing sectors if he does not believe in them. But this could also cause him to miss out on rallies. The rally in basic-engineering in 2003 is one such instance. When the Bombay Stock Exchange Capital Goods returned 167.81 per cent.
While the top 10 holdings account for almost half the portfolio, the fund manager takes small exposure in a large number of stocks. Many stocks account for just 1 per cent or less of the portfolio.
Though it has the unique ability to always protect the downside, it is not the most exciting offering out there. During bull runs, it has been a middle of the road performer.
MAGNUM TAXGAIN – FOR THE CONSERVATIVE
Magnum Taxgain slowed down last year but we think it still remains a worthy pick.
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This fund's performance can be broken up into two phases: pre-and post-2003. In the seven years spanning 1996 to 2002, the fund underperformed the category every single year, barring 1999 when it delivered a mesmerising 330 per cent (category: 209 per cent). From 2003 onwards, it was on steroids.
After an excellent performance that year, it was the best performing fund in its category till 2006. The year 2007 proved to be a dent in its performance when the fund was not even in the top two quartiles. In 2008, managed to contain its losses, shedding 55 per cent as compared to the category's 59 per cent.
The fund manager tends to tilt towards growth stocks but sticks largely to a buy-and-hold strategy without overlooking opportunistic bets. For instance, its entry and exit from stocks of ACC and IPCL in the earlier years or its dabbling in certain Initial Public Offerings. But recently, the fund has undergone a transformation into a more conservative offering.
Most apparent has been the increased allocation to cash and debt from 2006 onwards. While the mid-and small-cap allocation began to decrease that year, the fund took on a large-cap orientation towards the middle of 2007. Simultaneously, the fund also broadened its portfolio. The number of stocks rose to 77 by 2007, and has been maintained at those levels since.
However, the conservative tilt may appeal to investors looking for a tax-saving avenue in turbulent market conditions.
SUNDARAM BNP TAXSAVER – FLEXIBILITY IS KEY
This fund's adaptability is appealing. Though there have been times when it did not shine and delivered average returns, its approach has translated into a competitive long-term record. Even more favourable is that it has often displayed the ability to protect the downside.
Neither was it surprising to see its 48 per cent large-cap allocation (March 2007) shoot up to almost 70 per cent by June 2007 before sliding and down to 54.75 per cent by the end of that year.
It's also nimble in its asset allocation. More so, in 2008 where the cash and debt allocation totally went up to 36 per cent.
If the fund manager sees opportunity, he is quick to capitalise on it, be it in stocks or sectors. In 2007, for instance, after increasing the allocation to financial services to nearly 21 per cent (December 2007), the fund manager reduced it to 4.93 per cent in June 2008 and four months later it stood at 21.91 per cent. But rarely does the fund manager take an exposure of more than 5 per cent to a single stock. In fact, this actively managed fund has the highest Sharpe Ratio amongst the tax planning funds, which means, it generates higher returns for every unit of risk taken.