ICICI Pru Tax Plan: INVEST

A five-year track record that would give most diversified equity funds a run for their money makes ICICI Pru Tax Plan a good option among tax-saving funds.

The fund also has a solid history of outperforming its benchmark across market cycles. Investors looking for equity-linked savings schemes can buy units of the scheme. Since every investment in a tax-saving fund has a lock-in of three years, investors can perhaps put in small lumpsum investments rather than SIPs.

This fund allocates about 30 per cent of its portfolio to mid- and small-cap stocks. Despite their run-up in the last few months, the gulf between valuations of mid- and small-cap stocks vis-à-vis large-caps remains. This provides scope for appreciation once the economy recovers and the investment cycle picks up.

ICICI Pru Tax Plan has delivered 25 per cent returns over the last five years, a feat few diversified funds have managed. During this period, it has outperformed its benchmark, the CNX 500 index, by a wide margin of 8.3 percentage points.

Also, the fund has done better than the benchmark during market rallies and falls. In falling markets, it exhibits a tendency to lag peers such as Franklin Tax Shield and HDFC Tax Saver. But when the tide turns, the fund beats these peers convincingly.

This is especially true of the last three years. Hence, it would suit investors willing to take on a little more risk for higher returns. Going by the experience of the last five years, investments made at any point in time have a 91 per cent chance of beating the CNX 500. This means little effort is required by way of timing the investments to get better returns.

ICICI Pru Tax always remains invested above 90 per cent levels in equities, irrespective of market conditions. Even as it did this in the pessimistic markets of 2008, the scheme managed to keep its head above water, restricting losses by about a percentage point in comparison to the benchmark.

Banks, software and pharma have been among its preferred sectors in the last two to three years, though exposure to banks was rightly trimmed, while software and pharma moved up in priority in recent times.

That the fund has been scouting for value buys in the beaten down space is confirmed by a gradual increase in its exposure to sectors such as industrial capital goods and construction projects. Voltas, Texmaco, BHEL and Bharat Electronics are some of the stocks it holds in this space.

A value bias is also visible from recent exits/reduction in holdings in stocks such as Amara Raja Batteries and TCS, which have had a good run in the last one year.

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