The Hindu Business Line : HDFC Long Term Advantage: Invest

The fund ranks high on consistency of performance, having outperformed broad-based indices such as the BSE-500 more than half the time over the last five years.

HDFC Long Term Advantage has been an average performer in the equity tax-saving category over the past year. With returns of about 25 per cent, it trails its benchmark, the Sensex, as well as peers such as Principal Tax Savings, HDFC Tax Saver and Franklin India Tax Shield. This could, however, well be just a temporary blip, as the fund has a strong five-year track record.

Its performance during market downturns has been particularly impressive. Even in the correction period that started this May, the fund acquitted itself well, containing its declines better than its peers. This is despite the fact that it had a much higher allocation to mid-cap stocks, which came under greater selling pressure.

Suitability: Since 2005, Long-Term Advantage, which earlier sported a predominantly mid-cap profile, has gradually increased its allocation to large-cap stocks. With a blend of large- and mid-cap stocks, it carries a risk profile akin to that of a diversified equity fund.

The exposure to quality mid-caps makes it a good option for the long-term investor with a moderate risk appetite. Mid-cap stocks have the potential to generate superior returns over the long term, but are subject to a higher degree of volatility in the near term.

Investors who have had a systematic investment plan running with the fund over the past year may have reason to be disappointed, as the effect of postponing investments in a rising market, coupled with the fund's underperformance, would have fetched muted returns. However, over a longer time-frame SIPs have generated superior index-beating returns.

Also, the timing of investments has rarely had a material impact on returns. This makes it ideal for investors who are not comfortable with timing the market and who follow a disciplined approach to investing in equity.

Performance: Although the Sensex is its benchmark, HDFC Long Term has built its track record by riding the mid-cap wave. An offbeat sector focus also explains much of its earlier outperformance. With mid-caps out of action over the past year and with few unexplored sector themes left, the fund has found it tougher to outperform its category, let alone the entire range of diversified equity funds.

The fund, however, ranks high on consistency of performance, having outperformed even broad-based indices such as the BSE-500 more than half the time over the last five years. Over this period, it compensated investors well for risk, and figures at the top of its category on several measures.

Portfolio overview: The fund takes a focused approach to investing in sectors. However, investments within each sector straddle a handful of stocks, which usually include the top three players. Stocks such as Goodlass Nerolac, Maharashtra Seamless, Container Corporation and Carborundum Universal have been the prominent holdings in the portfolio for about two years now, a good indication of the fund's buy-and-hold strategy.

About 35 per cent of the assets are invested in stocks with a market capitalisation of less than Rs 2,000 crore. FMCG, paints, engineering and auto-ancillaries are the top sector holdings.

Fund facts: HDFC Long Term Advantage was launched in January 2001. Investments in it are eligible for tax benefits under Section 80C and are subject to a three-year lock-in. The minimum investment is Rs 500. The manager is Mr Tushar Pradhan. The NAV is Rs 82.9

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