The Hindu Business Line : Fidelity Tax Advantage Fund: Hold

Unitholders of Fidelity Tax Advantage Fund can retain their investments. The fund's performance since inception appears encouraging. Fidelity Tax Advantage has also outperformed tax saving funds such as Sundaram Taxsaver and HDFC Taxsaver over the past year, returning 19.1 per cent.

It marginally outpaced Magnum Taxgain, which continues to be a star performer from this category. For the same period, its benchmark BSE-200 generated a return of 15.6 per cent.

In general, several tax-saving funds prefer to take advantage of the relatively stable corpus by having a higher exposure to mid- and small-cap stocks. Fidelity Tax Advantage, too, has a mandate that allows it to invest in stocks without any bias towards market capitalisation.

However, the fund has actually remained large-cap oriented with exposure to mid and small-cap stocks (market capitalisation less than Rs 5,000 crore) restricted to 28 per cent or less of the assets.

This strategy helped it weather downside risks well during the corrective phases over the past year. However, fresh investments can be contemplated after monitoring its performance over a market cycle.

Profile: Fidelity Tax Advantage, for its asset size of Rs 711 crore, has a well-diversified portfolio with 77 stocks, and exposure to each stock restricted to 5 per cent.

The fund's mandate permits it to invest up to 25 percent of its assets in a single sector but, in practice, sector exposures have been contained at a maximum of 15 per cent. The fund had 24 sectors represented in its March portfolio.

The top three — banking, capital goods and software — together accounted for one-third of the assets. The fund appears to be one of the early movers into banking stocks even during their relative underperformance last year.

ICICI Bank, HDFC Bank and State Bank of India, which remained in the portfolio during the past year, have outperformed the market, boosting the fund's performance.

The portfolio turnover statistics suggest that the fund prefers the buy-and-hold strategy. The fund was launched in February 2006. Mr Sandeep Kothari manages the fund.

Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

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