The Hindu Business Line : Principal Tax Savings: Invest

The fund has outperformed the Nifty 66 per cent of the time on a rolling monthly return basis over the past 24 months. This reflects some level of consistency in performance.

Investors looking for tax-saving options can consider Principal Tax Savings (PTS). The fund's three-year annual return of 52 per cent compares well with diversified funds such as HDFC Top-200 and Franklin India Prima. It has also reshuffled its portfolio to accommodate more mid-cap stocks compared to its holding a year ago.

PTS, however lags top funds such as HDFC Equity or Magnum Contra. Investors holding established performing funds and seeking tax-saving options can consider exposure to this fund. Investments up to Rs 1 lakh qualify for income-tax deduction under Section 80-C. Investing in phases through the systematic investment plan (SIP) will enable average rupee cost, especially in the current volatile market. SIPs also provide investors a chance to take stock of a fund's performance periodically before assigning funds, instead of committing money at one go.

While tax-saving funds topped the of equity funds' performance chart in 2005, a number of them fell sharply in recent months and have dropped in the one-year performance chart. The lock-in period in these funds may, however, enable such blips to even out in the long term.

Performance: With its one-year return of 36 per cent, the fund has outpaced aggressive funds such as PruICICI Tax Plan and also Franklin Tax Shield — a relatively conservative scheme. The latter funds returned less than 30 per cent in the same period. PTS had lagged the same peers in 2004-05, when tax-savings funds reaped gains from their exposure to mid-cap stocks. The fund then held close to 85 per cent of assets in stocks with market capitalisation of over Rs 2,000 crore.

PTS has since increased exposure to mid-cap stocks and now holds close to 40 per cent in stocks with a market cap of less than Rs 2,000 crore.

PTS has slightly lagged the one-year benchmark S&P CNX Nifty return of 37 per cent. It has, however, outperformed the Nifty 66 per cent of the times on a rolling monthly return basis over the past 24 months. This reflects some level of consistency in performance.

Portfolio: As of July, PTS had about 40 stocks in its portfolio with exposure to individual stocks at less than 6 per cent. The top 10 stocks accounted for close to 40 per cent of the assets. The allocation to sectors has not seen any significant change with engineering stocks continuing to enjoy the top slot in the portfolio. Under-performance of stocks in the construction goods space appeared to have prompted the fund to exit stocks such as Hindustan Construction, Patel Engineering and D. S. Kulkarni Developers.

While most ELSS funds started with a small asset base, a number of them, such as HDFC TaxSaver and Magnum Tax Gain, saw manifold increases in asset size. PTS, however, continues with its compact asset size of about Rs 123 crore, allowing for flexibility in managing the portfolio.

Fund facts: Principal Tax Savings was launched in March 1996 and is managed by Mr R. Srinivasan since July 2005. The fund offers only a growth option. It charges an entry load of 2.25 per cent and has a lock-in period of three years. The minimum investment is Rs 500. NAV per unit is Rs. 64.8.

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