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Suresh Parthasarathy

Investments can be considered in Principal Tax Savings Fund, an open-ended equity-linked saving scheme, based on its three-year performance. Among the tax-saving options, this fund has outpaced its peers but trailed Magnum Tax Gain during this time-frame.

In general, tax-saving funds tend to take larger exposures to mid-cap stocks given their three year lock-in period. Though a higher exposure to mid-caps helped such schemes in 2005 and 2006, the narrow rally of 2007 saw tax-saving funds trailing their diversified peers, due to their mid-cap exposures.

Suitability: Principal Tax Savings Fund invests about half of its assets in mid-cap stocks. Peers such as Magnum Tax Gain and HDFC Tax Saver, invest a lower 25 per cent of assets in mid-caps. Since mid-caps tend to be more vulnerable to market swings, exposure to this fund can be routed through systematic investment plans. An investment of up to Rs 1 lakh is eligible for tax benefits under Section 80-C.

Performance: The fund’s NAV has appreciated 32 per cent over the past year and it has outpaced its benchmark Nifty and broader indices such as the CNX 500 by few percentage points. However, the fund trailed DSPML Tax Saver and Principal Personal Tax Saver by good 10 percentage points.

Portfolio: The fund has 39 stocks in its latest portfolio and its assets are spread across 17 sectors.

The fund restricts exposure to any single stock to less than 7 per cent of the portfolio.

The top three sectors — capital goods, finance and construction — accounted for 35 per cent of the portfolio. The fund used the recent market correction to rejig its portfolio; it accumulated shares of BHEL, Grasim, Sterlite Industries and Reliance Capital. Instead, it pruned exposure to stocks such as Infosys Technologies, ITC, State Bank of India and Jindal Steel and Power.

Fund facts: The fund was launched in 1996. It is managed by Mr Shyam Bhat. The minimum investment is Rs 500 and for direct investment there is no entry load.

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