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HDFC Long Term Advantage: Invest

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Though there has been a slackening in the fund's performance over the past six months, exposures may be considered based on its track record.

S. Vaidya Nathan

This tax-saving fund is probably going through the most indifferent patch in performance since its launch in 2000. It has been trailing a host of peer funds a rather unusual occurrence for a fund that consistently figured among the top performers.

The slack showing over the past six months has also been a drag on the one-year returns. The NAV has risen by about 80 per cent over the past year.

The indifferent performance is largely attributable to sector selection, as it has been low on stocks from the engineering and construction space that have rocked the market yet again over the past six months.

This is probably one of rare occasions when offbeat sector preferences have hurt the fund. The fund appears to have adopted a defensive tilt and, in the process, has lightened exposures to the engineering and construction sectors.

With the market having been on a roll, going forward, the defensive portfolio tilt could prove a positive as, in a corrective phase, the fund could escape with minimal damage.

Why are we then still bullish on the fund? There are several reasons. Foremost is its outstanding long-term track record.

Quite a few other top performers have gone through sluggish periods only to return to good form. There is no reason why HDFC Long Term Advantage should not do likewise.

The asset base of about Rs 350 crore, despite a manifold rise over the past two years, is still small and provides for a high degree of flexibility in management.

The fund has a mid-cap and nascent large-cap bias, which could also be the winning theme over the long term.

In this backdrop, investors could start on a systematic investment plan spread over six months.

Investments in this fund will be eligible for the exemption of Rs 1 lakh under the Income Tax Act. There will be a lock-in period of three years.

Suitability

: The risks associated with the fund are in line with what one expects of a typical diversified fund. The returns have more than adequately compensated for the risk element. Investors could opt for the growth option, as capital gains will not be applicable due to the lock-in period.

Portfolio overview

: The fund retains its preference for stocks such as Goodlass Nerolac, MICO and Great Eastern Shipping, which still figure in the top ten holdings. The preferred large-cap plays are Tata Motors, Container Corp, SBI, ITC and Nestle.

Fund facts: The fund was launched as HDFC Tax Plan 2000 in December 2000 and its name was subsequently changed to HDFC Long Term Advantage. The minimum investment is Rs 5,000.

The entry load is 2.25 per cent. There is no exit load. Mr Tushar Pradhan manages the fund. The NAV of the Growth Option is about Rs 88 per unit and that of the Dividend Option, Rs 43 per unit.

(This article was published in the Business Line print edition dated April 9, 2006)
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