The Hindu Business Line : PruICICI Tax Plan: Invest

Investments can be considered in PruICICI Tax Plan if you are an aggressive investor. The three and five-year returns from this scheme are 54 per cent and 55 per cent respectively, comparable to its peers, and it is ranked among the top three in this category over a five-year period. Most of the tax-planning funds consciously employ a mid-cap tilt in their portfolios to take advantage of the lock-in period of three years.

This strategy proved highly successful between 2003 and 2005 and several funds generated returns of 80-100 per cent. Since the market meltdown in May 2006 hit mid-caps hard, the returns for most of the funds are significantly lower than in previous years.

Some of the top-performing funds have gradually re-jigged their portfolio and moved towards large-caps to protect against a slump in their performance.

Suitability: If you happen to be a conservative investor, you can park a part of your investment in this fund to boost your returns. Investment in it is eligible for tax benefit under Section 80C for investment up to Rs 1 lakh. The remainder can be invested in other large-cap funds, depending on your risk appetite.

Performance: PruICICI Tax Plan's one-year performance has failed to justify the track record. The fund has generated a return of 41 per cent and trails its benchmark Nifty by 7 percentage points. This underperformance has led to drop in their rankings below the top ten performing funds.

The strategy of higher exposure to mid- and small-cap stocks with market capitalisation lower than Rs 2,500 crore has cost it dearly and impacted returns. Even during the earlier mid-cap rally, the fund had restricted its exposure to this segment to 50-55 per cent. However, this year, as it increased its allocation to more than 65 per cent, the plunge in the market has clearly affected its performance.

Portfolio Overview: PruICICI Tax Plan has 49 stocks in its portfolio, and the top ten account for 41 per cent of the net assets. The top three sectors — auto ancillaries, pharmaceuticals and consumer non-durables — corner 40 per cent.

These three sectors have enjoyed high asset allocation for almost a year now. The fund has higher exposure to stocks with market caps lower than Rs 1,000 crore, accounting for 43 per cent of the portfolio. This enhances its risk profile.

Fund facts: PruICICI Tax Plan was launched in 1999 and the asset size is Rs 547.2 crore. Mr Sankaran Naren manages the fund. The minimum investment is Rs 500 and the entry load is 2.25 per cent.

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