The Hindu Business Line : HDFC Tax Saver: Invest

HDFC Tax Saver is a good option for investors seeking to build a long-term equity portfolio. From its launch in 1996 the fund has generated a return of 40 per cent on a compounded annualised basis. Its consistent performance across different market conditions makes it an ideal choice, both for tax benefits and for investment purposes.

Taking advantage of the mandatory three-year lock-in period, most tax-saving funds tend to adopt a longer-term view on the market and invest predominantly in mid- and small-cap stocks. This fund, too, has had higher exposure to mid- and small-caps and generated hefty returns for investors. Both HDFC Tax saver and HDFC Long Term Advantage have rewarded investors with similar returns of about 55 per cent over a five-year period.

Those who opted for systematic investment plans over the same period could have earned higher returns. Hence, investors choosing to make an investment into this fund can use the SIP route of investing at various points to average their cost of investment.

HDFC Tax Saver has under-performed over a one-year period, with its return of 28 per cent trailing the benchmark CNX-500 marginally. A heavy exposure to laggards such as FMCG and automobiles could explain its trailing returns.

Portfolio overview: The fund has 37 stocks in its portfolio and the top 10 accounted for 47 per cent of assets. Up to 45 per cent of assets were invested in stocks with a market capitalisation of less than Rs 2,500 crore during the mid-cap rally of 2005. However, over the past year, the fund has reduced exposure to mid-caps and stepped up allocation to large-caps. The fund now has about 20 per cent exposure in mid-caps.

The fund has a concentrated portfolio with automobiles, its largest sector, accounting for 18 per cent of the assets. Engineering and technology stocks also figure as prominent holdings, while exposure to FMCG has been contained at 8 per cent.

Fund facts: Mr Vinay Kulkarni has been managing the fund since November 2006, when he took over from Mr Dhawal Mehta. The minimum one-time investment is Rs 500. Equity Linked Savings Scheme (ELSS) have a lock-in period of three years and investment into this fund is eligible for tax benefit under Section 80C up to an investment of Rs 1 lakh.

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