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AN investment may be considered in HDFC TaxSaver, as its impressive track record, small asset base and portfolio composition point to steady gains over a period of three to five years.

Investments can, however, be phased out in small lots as this would enable investors to capitalise on any weak trends in the equity market. This strategy has delivered attractive returns in the past in this fund.

This fund has performed well across different phases of the market and has been consistent across quarters over the years. This is reflected in the annual returns of about 55 per cent and 25 per cent over the past three years and five years, respectively. It has comfortably outperformed its benchmark, the S & P CNX 500, as well as most other equity funds.

An investment in this fund would entitle investors to a rebate under Section 88 of the Income-Tax Act. Such investments will carry a three-year lock-in period. The eligible amount would be Rs 10,000.

Investors who have not taken advantage of this facility could do so by taking exposures in this fund before March 31. We do, however, believe that investors should make this fund as well as HDFC Long Term Advantage, a core part of their portfolio of equity funds. Its performance is reason enough to invest, and if you can avail of the tax incentive, that is a plus.

Suitability: Due to its mid-cap tilt, the risks associated with HDFC TaxSaver are higher than those associated with a diversified equity fund. But the returns have more than adequately compensated for the higher risk element. Investors could opt for the Dividend Option due to its superior tax efficiency.

Portfolio overview: A few large-cap stocks such as Grasim, Satyam Computer, SBI, ITC and Ranbaxy, to name a few, account for about 15 per cent of assets.

The fund has opted for a small number of stocks and stayed invested in most of its core holdings for several months now. Stocks such as Shanthi Gears, Crompton Greaves, Carborundum Universal, Goodlass Nerolac and Macmillan are examples.

The small asset base of about Rs 40 crore provides for flexibility in investment management and is a major positive for would-be investors.

Fund Facts: HDFC TaxSaver was launched in December 1995. The minimum investment amount is Rs 500. The entry load is 2.25 per cent. There is no exit load. The fund manager is Mr Dhawal Mehta.

S. Vaidya Nathan

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