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S. Vaidya Nathan

AN investment may be considered in SBI Magnum TaxGain Scheme'93 as it has shown signs of maintaining the considerable improvement in its performance over the past couple of years.

We had advocated a hold recommendation on the scheme last August as the performance was becoming impressive. There has been a quantum improvement in the quality of several SBI Mutual funds, which is a factor that inspires confidence.

Over the past year, the fund has returned about 80 per cent; its returns over the past three-year period is about 55 per cent. The fund has capitalised on the bullish trend in equities in 2003 and 2004; its shift to mid-cap stocks has paid rich dividends as suchstocks enjoyed re-rating during this period.

Barring Gujarat Ambuja Cement, the fund has weeded out even the few large-cap stocks that it held last year.

It has a compact portfolio of about 20 stocks, which also cuts the number of correct calls that need to be made. This, coupled with the small asset base of about Rs 70 crore, which provides for a high degree of flexibility in fund management, are also positives for investors.

The fund has also stuck with quite a few of its mid-cap stocks in the top ten holdings — Thermax, United Phosphorus, Sintex, Praj and KPIT Cummins — for several months now. This strategy has paid off. The quality of stock selection that has facilitated such an approach is also a source of comfort as it points to the ability to latch on to themes ahead of their acquiring market fancy.

Investors could, however, take exposures in a phased manner by buying small lots. An investment in this fund of up to Rs 10,000 is eligible for a rebate under Section 88 for this fiscal; from next year, it could be used as an option for the Rs 1-lakh deduction from income that will be available.

Investors seeking to invest to save on tax for this year by making a lump-sum investment could, however, opt for this fund and HDFC Long-Term Advantage.

Suitability: Given its focus on mid-cap stocks, the risks associated with the fund are higher than the typical diversified equity fund. .

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