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Sunday, Dec 21, 2003

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PruICICI Tax Plan: Hold

S. Vaidya Nathan

UNITHOLDERS in the Prudential ICICI Tax Plan can retain their holdings despite the sharp spurt in the NAV. The fund's performance has been impressive and the portfolio appears to hold room for gains. It has turned in returns of about 125 per cent over the past year. It has comfortably out-performed the broad market indices as well as most diversified equity funds. The NAV of PruICICI Tax Plan is Rs 30.1 (Growth Option) and Rs 19.8 (Dividend Option).

The fund's long-term track record has not been as impressive. It has turned in annual returns of about 30 per cent over the past three years. But much of this is attributable to the run-up in the NAV over the past year.

Between November 2000 and November 2002, the NAV had not posted gains of any significance. However, it did manage to come out of the meltdown in equities in the first quarter of 2000 with a healthy NAV after a 60 per cent dividend in March 2000.

Suitability: The fund has a distinct tilt towards mid-cap stocks. The risks associated are on the higher side than in a diversified fund that focusses more on large-cap stocks. The fund has delivered attractive returns over the past year, riding the boom, especially in mid-cap stocks.

The fund is appropriate for investors with a penchant for high risk. Investments in the fund are eligible for a rebate of 10 or 15 per cent under Section 88 of the Income-Tax Act. Investors can stay with the dividend plan as dividends are exempt from tax in FY 04.

Portfolio overview: The fairly well diversified portfolio of the fund has a fair sprinkling of auto, chemical, metals and oil sector stocks. They account for about 65 per cent of net assets. The stock selection has been good.

The focus on stocks such as Trent, Tata Steel, Mahindra & Mahindra, GE Shipping, Sesa Goa and United Phosphorus has paid off and holds prospects of a further upside as the outlook appears promising. In the IT sector, the focus on stocks such as KPIT Cummins, i-flex solutions and Infotech Enterprises has provided a boost to the NAV.

Barring Tata Steel, Hero Honda and Mahindra & Mahindra, the portfolio is laced with mid-cap stocks which account for about 85 per cent of assets. The small asset base of Rs 46.7 crore will continue to provide flexibility in portfolio management. This assumes importance given the thrust on mid-cap stocks.

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