Tuesday, February 19, 2008

Less aggressive funds

SBI Magnum Taxgain: The top performing fund in the 3- and 5-year time frame, SBI Magnum Taxgain retains the flexibility to move into whichever market segment it sees opportunities in. Its mid- and small-cap focus in 2003, 2004 and 2005 reaped huge returns.

The fund's 3-year and 5-year returns of 59.93 per cent and 69.43 per cent, respectively, make it one of the top performers in this space. Since the mid-2006 market crash, it has slowly shifted focus to large-caps. At Rs 3,782 crore (Rs 37.82 billion), it is one of the largest funds in the category and may make it difficult for the fund to take substantial exposure in the mid and small cap segments of the market.

The past performance of the fund and its ability to move into various segments of the market makes it an attractive proposition for investors willing to put up with a degree of uncertainty for higher returns.

Sundaram BNP Paribas TaxSaver: A top performing fund in the category with returns of more than 45 per cent over a 3-year period, this fund again has the flexibility to invest across market segments and has done so successfully in the past.

The fund has always maintained a well-diversified portfolio with 55-60 stocks. So, even if one, or few stocks underperform, the overall performance won't be much at risk.

The fund has reduced its large-cap exposure in the last quarter of 2007 unlike most funds that increased holdings in large-cap stocks during the period. As a fund that can shift across segments, the ability of the fund manager to identify trends early enough would be crucial in the fund's performance and is suitable for investors willing to take this risk.

HDFC Tax Saver: This is another fund for investors, who would prefer a large-cap orientation in their investment portfolio. Though the fund had benefitted by moving into the mid- and small-cap space in 2003 and 2004, it has focused on large-cap stocks in the last two years.

The fund is among the top funds in the 3- and 5-year time frames though it fell in the 1-year stakes. The 1-year rolling return of the fund at 40.55 per cent still keeps it among the top schemes with more than three years of performance track record.

Franklin India Tax Shield: This scheme is suitable for investors who like steady returns with no surprises. Its biggest advantage has been its ability to negotiate market downturns.

The fund has given negative returns in only four of the 20 quarters. It finds a place on this list on the back of its consistent large-cap focus in its portfolio.

The returns from the fund at 29.17 per cent, 38.65 per cent and 45.95 per cent over one, three and five years, respectively, have been steady rather than spectacular. Investors willing to trade return for the comfort and lower risk of a large-cap portfolio can consider this scheme.

Aggressive funds

Principal Tax Savings Fund: This is another candidate for investors willing to take greater exposure to the mid- and small-cap segments. The fund has been among the top five schemes over one, three and five years and has consistently beaten the benchmark and the category average.

The fund is suitable for investors who are willing to take a higher exposure to the more volatile small-cap segment since the fund has a substantial exposure to it. The 3-year lock-in gives the fund manager the leeway to take such calls. Nevertheless, the fund is not for the faint-hearted.

Birla Sun Life Tax Relief '96: This is another multi-cap fund that has been a steady performer. It has consistently outperformed both the benchmark and the category average. It took a large-cap tilt in its portfolio after the mid-2006 market crash.

The fund has taken concentrated exposure to the financial services segment and has benefited from it as is evident from its 1-year return--41.66 per cent. The fund is suitable for investors willing to take greater risk associated with a higher degree of concentration both in sector and stocks.

Birla Equity Plan: For investors who are willing to take an extra dose of risk to benefit from better returns can invest in this fund that has always maintained a majority of its assets in mid- and small-cap stocks.

With returns of 40.94 per cent in the 3-year time period and 52.51 per cent in the 5-year period, the fund has done well to reward its investors. From a concentrated portfolio of 32-35 stocks, the fund has gone to a more diversified portfolio of 45-50 stocks in the last six months.

While this reduces the risk in the fund, it also limits the gains from good stock picks. With a fund size of Rs 196 crore (Rs 1.96 billion), the fund is still small enough to be nimble while moving in and out of sectors and stocks. The fund is a good pick for an investor with a higher risk appetite.

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