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Aarati Krishnan

TAX-planning funds largely outperformed other diversified equity funds over the past six months. But Alliance Capital Tax Relief is an exception to this trend. Over a one-year period, the fund trailed other tax funds such as HDFC TaxSaver and HDFC Tax Plan 2000 significantly.

Its performance is more in line with that of equity funds such as Franklin Prima Plus and Franklin Bluechip Fund. The slippage in returns in recent times may, however, turn out to be a short-term trend. Investors in the fund can continue to hold their investments, as it five-year track record is solid.

Suitability: The investment style pegs up the fund's risk profile in relation to other equity funds that follow a more diversified approach. From inception, this fund has taken fairly concentrated exposures in select stocks and sectors. This policy has continued over the past year.

This investment strategy results in large payoffs to investors when the fund's calls turn out right; but do impact performance considerably if they don't. The fund's long track record of beating both indices and peers enhances the comfort levels associated with this investment style.

Performance: The fund has generated a compound annual return of 25 per cent over a five-year period, compared to BSE-200 returns of about 7 per cent. The fund has continued to convincingly beat the BSE 200 over the past year, with returns of 41 per cent.

However, returns on tax planning funds such as the HDFC TaxSaver (54 per cent) and HDFC Tax Plan 2000 (68 per cent) have been superior over this period. The fund's accent on pharma and auto stocks, combined with its predominantly large-cap focus, appears to have dampened its recent performance.

The fund has continued to take concentrated exposures, spreading its investments over just 20-25 stocks. The top five holdings accounted for about 45 per cent of the NAV in September 2004.

Over the past six months, software, automobile and pharmaceuticals have been the fund's top sectoral choicesand exposures in sectors such as chemicals and capital goods were low.

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