DSP BLACKROCK TAX SAVER
The fund has rewarded investors during market rallies. But when the markets tanked in 2008, it lost 57 per cent, almost matching the category average and matched its benchmark, the S&P CNX 500. The fall was mostly due to its high exposure to mid- and small-cap stocks, 75 per cent of the portfolio by late 2007.
Fund managers restructured the portfolio to be defensive to protect the downside. Today, the fund maintains a bloated portfolio, with 71 stocks in its portfolio, (it had touched 97 in March 2008). Large number of stocks mean some insignificant allocation.
The fund is largely seen not to exceed five per cent holdings in a single stock. The fund uses a multi-cap strategy like many of its peers and deploys cash efficiently. It currently holds 60 per cent of its portfolio in the top 100 companies by market capitalisation.
Our view
In 2009, mid- and small-caps performed better than large-caps; returns = 84.22 per cent, against a category average of 82 per cent. And till November 2010, it had gained 21 per cent, compared to a 16 per cent gain by the category. The fund has increased its large-cap exposure over recent months, which can bring stability to its portfolio and returns. The growth-oriented portfolio the fund now has will pay off in a rising market. It will find it tough to cushion the loss if the market tumbles.
ICICI PRUDENTIAL TAX PLAN
This is largely a mid-cap fund, though currently half its portfolio is in large-cap stocks. The fund grabbed attention in 2009 by outperforming the category by 30 per cent (returns = 112 per cent).
It had a good run between 2003 and 2005. But by end 2006 and 2007, the fund tanked. In 2007, the fund was holding 20 per cent in fast moving consumer goods (FMCG) and healthcare, while it remained underweight in metals and energy sectors. Oil and gas stocks lead to the fund's poor performance in 2007.
In 2008, the fund was able to curtail its fall to 56 per cent, by increasing exposure in large-caps. This was achieved without resorting to aggressive cash and debt calls. This also helped when markets rallied in 2009 and it outperformed its peers in each quarter.
Our view
The fund currently has 15 per cent exposure to financial services and energy. With this increase, the fund is emerging into a flexi-cap fund from a pure mid- and small-cap fund. Today, large-caps account for half of the fund's portfolio. Though the fund may have periodic underperformances, investors should stay put for the long run to reap the rewards. In the 10-year period ending November 30, 2010, this fund delivered an annual return of 28 per cent, against the 21 per cent by the category.
TAURUS TAXSHIELD
The fund has seen a turnaround in its performance since 2007 and delivered impressively during market rallies. Till 2008, it was usual for this fund to have concentrated stock bets and high exposure to mid- and small-cap stocks, which dragged its performance during the market downturn. The number of stocks in the portfolio rarely exceeded 20 and it was common to see the top five holdings account for 60 per cent of the portfolio. In recent times, it has adopted a multi-cap approach.
After being the worst performing tax planning fund in 2006, it was the best performer in 2007. This was mostly due to concentrated stocks, sector bets and the exposure to mid- and small-cap stocks, that had a good run in the bull phase. When markets tanked in January 2008, the fund transformed into a diversified offering. The number of stocks increased to 37 by 2008, compared to less than 20 in 2007. The allocation to the top five holdings was limited to 15 per cent by December 2008. Increase in exposure to large-caps and high cash positions also helped the fund.
In May 2010, the fund reduced its engineering stock holding and increased its exposure to the financial sector. The fund was underweight on the banking, financial services and insurance (BFSI) sector, so it exited some of the engineering stocks.
Our view
The fund’s performance during market upsides has been good in recent times and it contained the downfall. But the fund is the most volatile tax planning funds, suited for tax savers looking for a high risk-high returns fund.
