Monday, November 12, 2007

Gem Gaze

Towering Tax Tycoons!

Tax savers have finally risen from their slumber! The hitherto microscopic corpus of the ELSS schemes, which are exclusive preserves of individual investors, have started burgeoning in the recent past and these towering tax tycoons have been the target of the tax conscious investing public in view of the scintillating performance turned out by them. Funds that have an impeccable five-year record (the sole exception being one-year old Fidelity Tax Saver) and have also managed to beat the broad market (S&P 500 index) would be the right choice for your portfolio.

Magnum Taxgain’s performance has propelled it into the number one slot in the ELSS category since 2004. This fund had a miserable past but has steered clear of it. Magnum Taxgain has also changed several fund managers since November 2005, but this has not affected its excellent performance. It is the largest ELSS fund with an asset size of Rs.1664 crore. In the recent past, the fund has kept its mid- and small-cap allocation in check and is now at 57.59 per cent. The fund fared quite well in the current market crash and not much of the portfolio has been revamped over the past few months.

An excellent performer, this fund has performed well during good times and displayed resilience during the bad times too. The fund has a limited corpus of 31 to 35 stocks. At one time, exposure to large-caps was huge and it dropped dramatically in 2004. Since then it has risen and it hovers in the 55 per cent range. It has 33 and 13 percent respectively in the mid-cap and small-cap segments. It is most heavily invested in the auto sector with 18.29% in auto stocks. Dancing to the tunes of the sectoral performances, it has re-entered the financial services sector which it exited sometime back while exposure to the automobile sector has declined.

Birla Equity Plan has come a long way since inception to emerge as a category beating fund. It has displayed an uncanny ability to sense an opportunity at the right time. Barring 2004, the fund has had a good run since 2002. The ability to identify trends, make swift moves and go against the herd has paid off. Good stock picks have in fact become the USP of the fund. For instance picks such as Automobile Corporation of Goa have delivered significant returns for the fund at a time when the auto sector has been in the grip of bears. In fact, the fund has maintained its position in the automobile sector at a high of 13 per cent through the bear phase while the average category exposure to the sector has hovered around 7 per cent. In spite of such a churn, the volatility in returns is below average. The fund manager prefers to hold a small portfolio of around 35 stocks in which he invests with conviction. Moreover each of these holdings accounts for over 1 per cent of the portfolio. This in turn means that each stock has a significant impact on the fund's returns. The mid- and small-cap allocation is high at 64.64 per cent. Another refreshing difference in the portfolio is the lower than average allocation to the technology sector. Those of you who have a tech heavy portfolio and are looking for a tax-planning fund to balance such a discrepancy can definitely look at Birla Equity Plan.

Fidelity Tax Advantage

The fund, positioned as one with a ‘go anywhere’ approach, has no market cap bias, no sector bias and no trend bias. At the same time the fund also aims to be well-diversified for greater risk control.The results delivered thus far look encouraging. The fund has managed to keep up with its peers in every quarter since its inception in January 2006. If the true test for a fund lies in its performance in a falling market, then Fidelity Tax Advantage has passed with flying colours. This achievement has been owing to the fund’s preference for large cap companies coupled with its diversified portfolio inspite of it being a new entrant. Perhaps the only departure from the category norm is the fund’s 10.88 per cent exposure to the healthcare segment. If Fidelity Tax Advantage manages to keep up its impressive fund management, it will emerge as one of the star performers in the ELSS space.

Selecting a good tax saving fund at the beginning of the financial year and using the systematic investment route to spread out your exposures in these funds over several months is the best course of action to follow. Tax saving funds being equity-oriented funds, and fairly aggressive at that, SIP investments may be the best way to ride out the volatility that is an inherent part of their returns.

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