Alliance Tax Relief '96: Hold/Buy on declines in market

Recommendation: Hold/Buy on declines in market

S. Vaidya Nathan

INVESTORS can stay with the fund, and fresh investments can be contemplated at weakness in the broad market.

Alliance Tax Relief '96 has a basket of stocks that may attract investor interest in the first leg of any upturn in stock prices.

Though it has some risky holdings, the portfolio can deliver commensurate returns. From a three-year perspective, the fund may have the flexibility to ride the momentum stocks, and its small corpus may come in handy while shuffling the portfolio of the fund. The track record over the last five years, with a compounded annual return of close to 67 per cent, provides some confidence.

Suitability: Alliance Capital Tax Relief '96 is appropriate for investors with an appetite for a higher degree of risk than one would expect from equity investments, on an average.

Investors without much exposure to the technology sector can consider exposures after using an option such as the Kothari Pioneer Infotech Fund (which has a higher degree of stability and top-line exposures in the technology sector). Investments in this fund are eligible for a rebate of 20 per cent under Section 88 of the Income-Tax Act.

Fund performance: Alliance Capital Tax Relief '96 recovered in the last three months much of the ground it had lost in the meltdown in technology stocks in the February-June period. The fund also appears to have completed the process of complying with the SEBI investment limits on individual stocks. This factor was also a dampening influence on the performance in the first six months of the year. Despite paring exposures to the prescribed limits of 10 per cent, the fund's concentration levels are still fairly high. This is because, of the top ten stocks, five have a weightage close to 10 per cent. The top ten exposures account for 73.4 per cent of the net assets of Rs 19.0 crore.

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Portfolio overview: The fund started off with a diversified portfolio and was among the first to make an entry into technology sector stocks. It also capitalised on the FMCG and pharmaceutical sector uptrend in 1997-early 1999, and got out of it before the market fancy for stocks in these sectors dipped. Subsequently, it assumed a heavy tilt towards the IT and telecom sectors.

The fund has generally had a high level of concentration, and this continues to be the case even now. In the last year, the fund has invested heavily in the telecom sector _ especially Himachal Futuristic, Shyam Telecom and Global Tele-Systems. This may be the riskiest part of the portfolio, and a lot would hinge on how the fund makes these positions profitable over time.

Fund facts: Alliance Capital Tax Relief '96 was launched in December 1995 as a close-end tax savings scheme. It was made open-ended last year. The fund offers a growth option. The entry load is 1 per cent and there is no exit load. Investments in the fund involve a three-year lock-in period in line with the norms prescribed for tax-saving funds that are eligible for a rebate under Section 88 of the Income-Tax Act.