The Hindu Business Line : Fidelity Tax Advantage: Invest

Investments can be considered in Fidelity Tax Advantage Fund, given the sound track record built over the last three years. Over a three-year period, the fund clocked compounded annualised returns of 12.8 per cent, outperforming its benchmark BSE 200 by five percentage points. However, the short-term performance — over a one-year period — was less impressive, as the fund trailed its benchmark by seven percentage points.

The fund's strategy is to invest in stocks without any bias towards market capitalisation. It however, has a cap on single stock exposure — to 4 per cent of the assets. But at times exposure to single stock goes beyond this threshold. Tax saving funds typically take advantage of the three-year lock-in to invest in mid and small-cap stocks to prop up overall returns.

However, several tax-saving funds preferred to stay invested in large-cap stocks since the correction in 2008 to combat volatility. Fidelity too was not an exception to this strategy. Besides, the fund prefers a buy and hold investment strategy. Hence it is more suitable forconservative investors and those looking for tax benefits under section 80C.

Performance: Fidelity Tax Advantage has generated an absolute return of 90 per cent over a one-year period. A relatively high cash component in the portfolio in the early part of 2009 and higher exposure to large cap stocks were key factors that did not allow the fund to fully participate in the initial leg of rally, thus trailing its benchmark. However the presence of large-cap stocks aided the fund in containing the losses during the market correction in 2006 and 2008.

Portfolio Overview: The fund sports a well-diversified portfolio of stocks and sectors. The fund's September portfolio sported 70 stocks across 26 sectors. While the diversification can help contain downside during market corrections, it can act as a drag during market rallies.

The fund's investment strategy is bottom-up stock picking said to focus entirely on the strengths of the company. True to its mandate, the fund went underweight in metals and construction stocks even during the market rally as fundamentals of these sectors remained sombre.

The fund remains large-cap oriented what with exposure to mid and small cap stocks (market capitalisation less than Rs 7500 crore) restricted to less than 25 per cent of the assets. The fund's portfolio turnover statistics also reiterates its buy-and hold strategy. The fund is managed by Mr Sandeep Kothari.

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