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Aarati Krishnan

ALLIANCE Capital Tax Relief has recouped after a sharp slide in performance in 2000 and 2001. Since 2002, the fund has generated returns of about 20 per cent, outpacing the S&P CNX Nifty by a hefty margin. Investors may hold on to their units, as the fund has out-performed the markets fairly consistently.

Fresh investments in the fund may be avoided now. Given the fairly sharp appreciation in broad market levels over the past six months, there could be an element of downside risk at these levels. It may be better to time an entry into an equity fund to a correction in broad market levels.

Also, in the past year, the fund has been outperformed by quite a few diversified equity funds, such as Franklin India Bluechip, Franklin India Prima Plus, HDFC (formerly Zurich) Equity, HDFC (formerly Zurich) Top 200 Fund and HDFC Growth Fund.

The fund has also generated significantly lower returns than tax-planning schemes such as HDFC Taxsaver, PruICICI TaxPlan and Birla Equity Fund.

Suitability: The portfolio strategy revolves around frequent churning of the portfolio and concentrated exposures in a few sectors. In the past, this has paid off through impressive risk-adjusted returns. But given the substantial risks associated with the strategy, the fund is suitable only for investors with an above-average appetite for risk.

Performance: Like most other diversified equity funds, it has outpaced the indices during the uptrend in the equity market since last year, generating returns of around 20 per cent over the year.

If the fund has generated lower returns than other diversified funds, this appears to be on account of its high weightages to IT stocks until recently. IT stocks have not participated fully in the sharp rally in broad market levels since December 2002.

Yet, until March 2003, IT sector, at 26 per cent, remained the largest exposure in the Alliance Capital Tax Relief portfolio.

It has pegged up its weightage in banking stocks from 19 to 25.6 per cent. But this move has led to the fund missing out some of the rally. The fund has also had a relatively small exposure to capital goods stocks, which have been buoyant over the past six months.

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