Mutual Funds

Fidelity Tax Advantage Fund: Invest

K. Venkatasubramanian | Updated on November 05, 2011

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Investors looking to save on taxes by investing in ELSS schemes can consider exposure to Fidelity Tax Advantage Fund (Fidelity Tax), given its steady track record.

Over one-, three- and five-year periods, the fund has outpaced the returns of its benchmark — BSE 200.

It delivered compounded annual returns of 13 per cent over a five-year timeframe, making it one of the best in its category as well as the overall diversified fund universe.

Over this period, the fund has delivered higher returns compared with Franklin India Tax Shield and Sundaram Tax Saver.

The fund manages to contain downsides quite well vis-à-vis its benchmark, while also ensuring adequate participation during market upswings. During the market fall of 2008-09 and in the volatile environment over the past one year, Fidelity Tax has contained losses 5-8 percentage points better than the BSE 200.

In the 2009-10 rally, the fund was able to deliver a similar level of outperformance.

Investors who are yet to exhaust the 80C limit for the current fiscal can park small amounts in Fidelity Tax. Avoid SIPs as every instalment would be subject to the three-year lock in. Tax exemption on equity linked schemes may not continue if the direct tax code comes into force from April 2012.

Portfolio and strategy

Fidelity Tax takes significant exposure to mid-cap stocks(less than Rs 7,500 crore market capitalisation) as with many funds of this genre.

This has been to the tune of 20-25 per cent of the portfolio across market cycles. This enables the fund to benefit from broader market rallies.

The fund has 60-65 stocks in its portfolio at any point in time and refrains from taking concentrated exposure to individual stocks, thus ensuring a cushion in volatile markets. Exposure to individual stocks is restricted to less than 5 per cent of the portfolio.

The fund also moved to cash levels of 10-15 per cent during the 2008-09 market fall. In the subsequent rally, it was quickly able to deploy the cash to equity. Banks and finance have consistently been the top sector in which the fund has invested. The fund, which had capital goods and petroleum products among its top sectors earlier, has substantially trimmed exposure to these over the past couple of years.

Software, pharmaceuticals and consumer non-durables have consistently figured among the top few sectors held.

Fidelity Tax gained due to the extended rally that the stocks in these sectors witnessed from the market lows. These three sectors have by and large remained immune to the concerns on domestic slowdown and other macroeconomic worries.

Even in terms of weights assigned to each sector, barring banks, exposure is restricted to less than 10 per cent even when a sector experiences considerable momentum.

Over the last one year, the fund moved out of troubled stocks such as SKS Microfinance and Sun TV Network. Underperformers such as REC, OnMobile Global Services and Union Bank of India too have been exited.

Interestingly, stocks that have found their way into the portfolio include mid-cap names such as Persistent Systems, Idea Cellular Redington India and Century Textiles.

Published on November 05, 2011

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