The Hindu Business Line : Birla Equity Plan: Invest

Investors may consider Birla Equity Plan one of the options for tax-saving investment this year. While the fund has lagged top funds such as HDFC TaxSaver and Magnum Taxgain over the past year, it continues to find a place in the performance chart of the top ten ELSS funds.

Investors who had held on to the fund over the past five years would have earned 52 per cent annualised returns. This performance is comparable to top diversified funds such as HDFC Equity.

Performance: Birla Equity Plan has in the past had a chequered track record. After an aggressive strategy with high exposure to IT stocks during the stock rally of 1999-2000, the fund restructured its portfolio to reflect more diversification in 2002. It has since recorded consistent returns and weathered choppy markets better.

The fund's return of 35 per cent over the past one year has under-performed its benchmark Sensex's 49 per cent. The bias towards mid-cap and small-cap stocks appears to have dragged down performance as this segment bore the brunt of the market correction in May and saw only selective recovery since. With valuations in this segment appearing more attractive now, however, the portfolio may hold greater potential in the coming year.

The fund has so far managed to identify trends in sectors and make swift moves to capitalise on the same. For instance, the fund was low on banking stocks until June 2006. It quickly increased its holding in the sector to over 15 per cent of the assets to ride the banking rally and partially booked profits to hold less than 10 per cent now.

Suitability: In December 2005, Birla Equity Plan held 26 per cent of its holding in stocks with a market capitalisation of less than Rs 2,000 crore. The fund now holds about 48 per cent in the same category. Such sizeable exposure to small-cap and mid-cap stocks places the fund in a relatively higher risk profile compared to large-cap funds such as Franklin Taxshield. However a portfolio laden with quality small-cap stocks may mitigate the fund's risks from liquidity and volatility in earnings not uncommon to such stocks.

The fund holds stocks such as Taj GVK Hotels & Resorts, Rallis and Sundram Fasteners in the small- and mid-cap segments. Further, while the fund makes apt moves in its sector and stock calls, it is less aggressive than its peer PruICICI Tax Plan. Hence the fund is likely to suit a moderate-risk investor.

Tax-saving funds have a lock-in period of three years and qualify for tax deduction under Section 80-C within the overall limit of Rs 1 lakh. Investors can consider buying into the fund in small lots spread over the year, to reduce the downside risk associated with the equity market. Systematic investment plans can be renewed for further periods, after a review of the performance. Investors need to note that each instalment is subject to the three-year lock-in from the date of investment.

Fund facts: Birla Equity Plan has been managed by Mr Jayesh Gandhi since November 2005. It carries an entry load of 2.25 per cent and has no exit load. The fund introduced a growth option under this scheme in October 2006.

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