The Hindu Business Line : HDFC TaxSaver: Invest

HDFC TaxSaver remains one of the top performers in the equity fund space and is one of our preferred picks. Investors could contemplate fresh exposures in the fund, as its portfolio also appears well positioned at this stage of a protracted bull market that has now lasted close to two-and-half years.

Investing in a fund that has such an outstanding track record of over a decade and straddling several phases of the market is a superior option to new fund offers. Exposures could, however, be phased out using a systematic investment plan. Opt for a twelve-month plan, as it will enable investors to enter at various price points and capitalise on any downward trend in equities.

The NAV is about Rs 100 per unit. An investment in this fund will qualify for tax deduction; but this will entail a lock-in period of three years. This aspect ought not to deter investors, as the returns are likely to be attractive. In the wake of its impressive performance, this fund is a good option even for investors who do not have an eye on the tax-saving element.

The NAV has gained about 100 per cent over the year; HDFC TaxSaver sports annual returns of about 30 per cent over a ten-year period. It has comfortably outpaced peers as well as benchmark indices.

The fund has also shifted tack subtly. It has stepped up its allocation to large-cap stocks. These account for about 45 per cent of assets. The fund has reduced exposures to mid-cap stocks after benefiting from several bouts of re-rating over the past three years.

We believe that this shift will enable it to turn in a superior performance, as gains in the broad market are likely to be more spaced out over the next couple of years and bouts of intense volatility may be in the offing.

The fund has also stuck to its tested strategy of investing in a small number of stocks. It has about 20 in its portfolio now. This, coupled with its asset base of less than Rs 100 crore, is a big positive. The compact portfolio reduces the number of calls to be made and should work to the fund's benefit. The top sector preferences are banking, IT and engineering; this tilt could prove beneficial over the next year.

Suitability: HDFC TaxSaver's risk profile is higher than one associates with a typical diversified fund. The returns have been attractive even on a risk-adjusted basis.

For investors seeking exposures to equities, this fund should figure at the top of pecking order of preferences. If you already have exposures, stepping up holdings in this fund will still be a paying proposition. Opt for the dividend re-investment option.

Fund facts: HDFC TaxSaver was launched in 1996. The minimum investment amount is Rs 500. The entry load is 2.25 per cent. There is no exit load. The fund is managed by Mr Dhawal Mehta.

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