Alliance Capital: For the tax saver

Suresh Krishnamurthy

Recommendation: Fresh investments can be contemplated in the Alliance Capital Tax Relief '96 scheme.

The scheme offers tax benefits under Section 88 for an investor and investments are locked in for 3 years. In such a backdrop, the fund's focus on the technology sector stocks appears a reasonable proposition. Over a 3-year period, given the growth prospects for technology sector companies, stocks from that sector are expected to out perform the broad market.

The fund's track record is also a favourable factor. The fund has constantly remained focused on technology stocks. While the fund had to pay a stiff price for maintaining a high exposure to technology stocks, this has also helped the fund recover from the fall in the post-June period. The small size of the fund is also an advantage in terms of its ability to move in and out of stocks at short notice. The net asset value of the fund is Rs 66.55.

Suitability: Investments in technology sector stocks are more risky than the market average. Also, in the case of a 3-year locked-in investment, risks such as the fund manager risk also become relevant. While the track record of Alliance Capital Mutual Fund is a positive factor, the risks do exist. Generally, the risks can be considered to be relatively much higher than the market average. Investors comfortable with such risks can opt for an investment in this mutual fund.

investors can opt for the dividend option of the scheme. Even if dividends distributed by mutual funds are made taxable in next year's Budget, investors can stick to the dividend option. Since the investment is locked-in for three years, dividends declared help in cashing out a portion of the gains.

Portfolio allocation: The fund has generally maintained a focused portfolio. The weightage of the top 10 stocks have consistently accounted for 70 per cent or more. Considering the small size of the fund, a focused portfolio appears reasonable.

Sectorally, the top exposures in the fund are IT sector, telecom and financial institutions. The exposure to the media sector has been brought down considerably. In terms of stocks, the top exposures are HCL Technologies, Satyam Computer, Infosys, Shyam Telecom and NIIT. The fund's maintains limited exposures to the mid-sized and smaller companies in the IT sector. Cash position in the fund stood at 11.3 per cent.

Background: The fund was launched in March 1996. The performance of the fund in comparison to BSE 200 its benchmark has been impressive since inception.