The Hindu Business Line : PruICICI Tax Plan: Invest

INVESTORS with an appetite for risk can take exposures in PruICICI Tax Plan. Over the past year, it has been among the top performing funds in the tax planning space. Its three-year track record is also impressive in comparison to its peers, with annualised returns of about 70 per cent.

The high returns are a result of the aggressive investment style that focuses on growth stocks in the mid and small-cap space. Returns from this fund could be more volatile than those from a diversified equity fund with a significant allocation to large-cap stocks.

PruICICI Tax Plan has more than doubled its NAV over the past year, piggybacking on the sharp re-rating of mid- and small-cap stocks over this time-frame. Returns for the past year have matched those of HDFC TaxSaver, the best option in the tax-saving space, by virtue of its consistent five-year track record.

PruICICI Tax plan's portfolio is invested predominantly in mid-cap stocks. Less than a third of the assets have been invested in stocks with a market cap of over Rs 2,000 crore. The bulk of the portfolio is in stocks with market caps of Rs 1,000-2,000 crore, with about a third invested in stocks with a less-than-Rs 1,000-crore market cap.

The composition of the portfolio pegs up its return potential, as the companies it owns may be capable of delivering higher earnings growth rates than frontline companies. Judging by the average price-earnings multiple of the portfolio, at about 14 times, valuation levels for these stocks also appear reasonable, within the universe of mid-cap stocks.

The fund's stock picks and its sector preferences have been quite unconventional. For one, auto ancillary and pharma stocks occupy the top sector positions in the portfolio as of July. Second, the portfolio had a fair sprinkling of less known companies such as Pokarna, Avanti Feeds and Nahar Industrial Estate, along with a complement of quality auto ancillary, banking and pharma stocks. The investment style, however, may carry a higher risk profile. With about a third of the portfolio invested in stocks with a market cap of less than Rs 1,000 crore, some of the stocks could carry limited liquidity, especially in the event of a decline in the market. Stocks that feature in the portfolio are also likely to offer more volatile returns than large-cap or even prominent mid-cap stocks. However, the fund has displayed good stock selection skills. Investors with appetite for risk can consider exposures to the fund.

Fund facts: PruICICI Tax Plan was launched in August 1999. Investments in the fund carry a three-year lock-in period and are eligible to be included under tax saving investments under Section 80C of the Income Tax Act. The fund size is at Rs 109 crore.

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