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S. Vaidya Nathan

AN impressive track record and thrust on mid-cap stocks that have the potential to deliver higher returns make HDFC Tax Plan 2000 an appealing investment option. We believe the portfolio has the potential to deliver superior returns as compared to the market and most diversified equity funds.

The fund has managed well the decline in equity prices in 2004, as well as the narrow range in which stocks have moved over the past three months.

The NAV has remained flat during this period even as the broad market declined by about 15 per cent. This is attributable to superior stock selection, especially in sectors in which valuation levels have taken a knock.

The performance has been impressive over longer time periods, too. It has delivered annual returns of about 40 per cent since the launch in December 2000. It is among the top ten in terms of returns over the past year.

An investment of up to Rs 10,000 in this fund would qualify for rebate under Section 88 of the Income-Tax Act. Investors who do not have an eye on the tax benefit could also take exposures; HDFC Tax Plan and Franklin Prima are the superior option if one is interested in the theme of mid-cap stocks.

Investment can be done in a phased manner — perhaps using the systematic investment plan — as this would enable investors to benefit from any weakness in equity prices.

Suitability: The fund has a diversified portfolio. The risks are higher as mid-cap stocks tend to be more volatile; at times, liquidity could also be a problem.

The fund has, however, handled such risks well over the past four years.

The returns have more than adequately compensated for the higher risk element.

Investors could opt for the Dividend Option to benefit from the tax exemption.

Portfolio overview: Several prominent mid-cap stocks such as Goodlass Nerolac, MICO, Great Eastern Shipping, Sundram Fasteners and Container Corporation, to name a few, form the core.

It is the willingness to take exposures in risky stocks, such as Vimta Labs, Balkrishna Industries, Orient Abrasives, Shree Cement, Gujarat NRE Coke and Heritage Foods, that stands out.

This approach has been a consistent feature of the fund management since launch.

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