If you are a risk-taker, willing to bet on mid- and small-cap stocks, you could consider investing a portion of your corpus in Reliance Tax Saver Fund, which allows deductions under section 80C of the I-T Act.

The fund, though benchmarked against the BSE 100, invests 40-60 per cent of its corpus in mid- and small-cap stocks.

This allocation has helped its NAV double in the past year. Investors can take exposure to the fund through the systematic investment plan (SIP) route.

But note that each instalment is locked in for a period of three years for tax purposes.

Concentrated bets

Reliance Tax Saver tops the category across one, three and five years. As a strategy, the fund takes concentrated exposure in two or three sectors at any given point in time. It currently has invested almost 40 per cent of its assets in the auto and auto ancillaries, and industrial capital goods space. Hence, the fund may suit only investors with a high risk appetite.

Though this strategy makes the fund vulnerable to any adverse development in these sectors, it has worked well during phases when the market has rallied. The flexibility to go down the market cap curve and take sizeable exposure to high-conviction bets in mid- and small-cap stocks has boosted the fund’s returns during recovery rallies.

For instance, in the past year, the fund clocked gains in excess of 97 per cent, even as its benchmark rose by about 41 per cent. Large exposure to small-cap stocks in the auto components space, such as TVS Motors, Sundaram Clayton, Eicher Motors, Bharat Forge, Ramakrishna Forgings and Automotive Axles, have boosted performance.

Caps downside

Despite taking aggressive bets, barring the 2013 fall, the scheme has largely been able to contain downsides during corrective phases too.

The scheme’s annual returns have been higher than its benchmark over 75 per cent of the time in the last five years.

Systematic monthly investment in the Reliance Tax Saver Fund over the last five years would have delivered annual gains in excess of 29 per cent. In the last six months, the fund has increased exposure to financials, industrial capital goods, metals and IT. It has also pruned holdings in oil and gas, and pharma stocks. The fund is betting big on two-wheeler maker TVS Motors and has invested almost 10 per cent of the scheme’s assets in the stock.

The scheme held 52 stocks in its portfolio as of December 2014.

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