The Hindu Business Line : Birla Equity Plan: Invest

BIRLA Equity Plan appears to be a good investment option in the universe of tax-saving funds. On a one-year and a three-year basis, its performance compares well with that of other diversified equity funds with a similar profile. The sector and stock choices also appear to have the potential to minimise the risks associated with investing in small and mid-cap stocks.

With returns of 70 per cent over the past year and 73 per cent (annualised) over the past three years, Birla Equity Plan's record compares well with that of other diversified equity funds with a similar profile. The fund has sizeable exposures to small and mid-cap stocks, with a 70:30 mix between mid- and large-cap stocks.

The fund's returns do not compare as favourably with its peers in the tax planning space; as funds such as SBI Magnum Taxgain, HDFC TaxSaver and PruICICI Tax Plan have managed superior returns. However, the Birla Equity Plan's approach to investing is less aggressive and it may be suited to investors with a lower risk appetite.

As of August 2005, about one-third of Birla Equity Plan's portfolio was invested in large cap stocks (with a market cap of over Rs 5,000 crore). About one-fourth of the portfolio was also parked in small caps (with a less than Rs 1,000-crore market capitalisation).

Such stocks would normally entail a higher degree of risk, arising from low liquidity and volatility in earnings. As the small-cap stocks in the Birla Equity portfolio are of reasonably good quality, mitigates these risks to a large extent.

The small-cap exposures in August, for instance, were Taj GVK Hotels, Tata Elxsi, Rallis and Geometric Software.

The fund's sector choices too are defensive. In August consumer non-durables, multinational pharma stocks and banks were the top sector choices. The first two sectors are recovering from a slump and are likely to outperform the market over the next couple of years. The stocks from these sectors are also those of prominent companies with healthy cash-flows and well-established brands.

Over the past six months, the fund has scaled down commodity stocks and enhanced exposures to sectors such as software, FMCGs, hotels and MNC pharmaceuticals.

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