Investors can buy the units of Axis Long Term Equity, a tax saving scheme which has delivered robust returns over the past three years.

The fund manages to participate well during market rallies, while also being able to contain downsides during corrections.

Axis Long Term Equity has a track record of over three years in existence, but has acquitted itself well in this period which was marked by volatile movements in the market.

Over one- and three-year timeframes, the fund has outpaced the returns of its benchmark – BSE 200. The level of out-performance has been to the tune of 8-10 percentage points.

In the last three years, the fund has managed to deliver compounded annual returns of 13.4 per cent, placing it among the top few funds in its category.

The fund started off largely as a large-cap fund, but has subsequently increased exposure to mid-cap stocks over the last couple of years, which has aided its performance.

The increase in mid-caps does enhance the risk profile of the fund, though the scheme reduces the impact of fall in such stocks by taking cash positions.

Axis Long Term Equity is suitable for investors with an above-average risk profile and looking to be compensated for this through relatively higher returns.

Investors taking the SIP route in the fund must keep in mind that each instalment in a tax saving fund is locked for a period of three years.

Portfolio and strategy

Axis Long Term Equity takes significant exposure to mid-cap stocks (less than Rs 7,500 crore market capitalisation), to the tune of 25-30 per cent of the portfolio.

In the rally of 2010 as well as 2012, the fund was able to do much better than its benchmark and also peers such as Quantum Tax Saving, Franklin India Tax Shield and Canara Robeco Equity – Tax Saver.

When the markets turn volatile or if there is a heavy slide, the fund shifts to cash to the extent of 8-10 per cent of the portfolio. This strategy helped the fund contain downsides significantly in 2011.

Banks and financials have always figured among the top sector picks of the fund. Software, pharma and consumer non-durables too have figured in prominence, but these segments have been shuffled around depending on the market conditions and generally, the timing has worked well for the fund. For example, going heavy on banks and consumer non-durables while cutting back on software aided performance in 2012.

Exposure to individual stocks is restricted to less than five per cent most of the time and in general, the fund does not take concentrated sector or stocks exposures.

Although Axis Long Term Equity has been around for just a little over three years, its performance in the see-sawing markets through 2009-12 lends confidence on the prospects of the fund.

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