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Aarati Krishnan

INVESTORS may consider Birla Equity Plan as one of the options through which they can route their tax-saving investments this year. This ELSS (equity linked savings) fund carries a three-year lock-in period.

The fund's track record over the past four years has not been as consistent as that of tax-planning funds such as HDFC Taxsaver and Alliance Capital Tax Relief. But with significant weights in pharma, IT and auto stocks, the fund now appears well-suited for an investor who wishes to avoid the risks associated with swings in government policy.

The fund has fared well since 2002, doing better than the indices, both in the rising markets of 2003 and in the market correction over the past five months.

Suitability: The fund carries risks normal to a diversified equity fund. Though the fund followed an aggressive investment strategy during the technology stock rally of 1999-2000, with concentrated exposures to such stocks, it has subsequently rectified this. It now has a well-diversified portfolio, in which no single sector accounts for over 15 per cent of the assets.

Performance: Birla Equity Plan has had a chequered track record since it went open-ended in February 1999. After an impressive show in 1999, the fund fell substantially behind the S&P CNX Nifty in 2000 and 2001.

After a restructuring of its portfolio for a more diversified profile, the fund delivered a substantial outperformance of the market in 2002 and climbed to the top of the performance charts in the bull market of 2003. The fund has weathered the choppy markets since January 2004 well, losing about 16 per cent in value, while the Nifty lost 18 per cent. The April portfolio shows that pharmaceuticals, IT and automobiles are its top sectoral exposures, accounting for about 40 per cent of the assets. The exposures to oil/gas and banking stocks were at less than 10 per cent.

The preference for pharma and IT stocks could peg up the average valuation levels of the portfolio. However, as things stand, these sectors appear to be the least vulnerable to uncertainties arising from a reversal of government policy. In this context, the low exposure to oil/gas and banking stocks could also help.

The fund was 94 per cent invested by April 2004, with just a 6.6 per cent parked in cash and cash equivalents at the end of the month.

Birla Equity Plan is a tax saving fund. Investments in it are eligible for a 20 per cent tax rebate under Section 88, but carry a three-year lock-in period. Investors may consider buying into the fund in small lots spread out over the year, to reduce the downside risk associated with the equity market.<137>

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