An aggressive tax saving fund

Looking for an aggressive investment under Section 80C?

Then maybe you should consider an Equity Linked Saving Scheme. These are diversified equity funds that give you the tax benefit under Section 80C.

Within this category, Prudential ICICI Tax Plan is a volatile fund that has provided great returns.

6 large-cap equity funds to consider

Should you?

Prudential ICICI Tax Plan has been one of the most volatile funds in the recent past. However, this should not be a big issue since investments are locked in for three years.

It has rewarded its investors quite well and the stocks picked up have been impressive.

Invest in this fund to add a mid-cap flavour to your portfolio, but be prepared to digest the ups and downs, which may come your way.

• Why the stock market is volatile

Performance

Prudential ICICI Tax Plan did not have a good beginning. After its launch in August 1999, it's Net Asset Value dropped by almost 35% during the quarter ended June 2000.

Like many other funds, it saw its returns evaporate in the tech meltdown.

In 2001, the fund did exceptionally well in minimising losses. Funds in the diversified equity category declined by 20% while this fund lost just 6%.

Reason: its dominant allocation to Fast Moving Consumer Goods and healthcare stocks.

In 2002, its peers came up with a much better performance. The reason being that it had more large-cap stocks in its portfolio than mid-cap stocks.

Since then, the fund has found great affinity with mid- and small-caps, which has worked well. In 2003 and 2004, it provided a return of 150% and 36.46% respectively.

This year, it has delivered year-to-date returns of almost 50%.

• Balanced funds to consider

Portfolio

Generating returns by investing in smaller companies has been hallmark of this fund.

The fund manager has displayed the ability to pick opportunities among lesser-known stocks early enough to earn handsome returns out of them. But the fund tries to mitigate the risk of investing in small-caps by keeping the portfolio well-diversified across sectors.

However, the fund at times takes concentrated bets in a few stocks. For example, fund's exposure to Aban Loyd Chiles Offshore averaged 9% between June 2004 and June 2005.

Aban Loyd has been in its top five holdings since December 2003, and has surged more than 250% since then.

KPIT Cummins, BOC India, Rane Engine Valves and Suryalakshmi Cotton Mills have been some other good bets.

At the sector level, the fund has exited metal stocks. The allocation to energy stocks has also gone down significantly. The fund manager seems to be quite bullish upon sectors like construction and health care.

Snapshot

All the NAVs and returns are calculated as on October 14, 2005.

NAV: 66.45
3-year return: 78.52%
5-year return: 41.32%