While critics are quick to point out that Magnum Taxgain slowed down last year, we think it still remains a worthy pick. Launched in 1993 as a close-ended fund, it was converted into an open-ended offering in 1999.
This fund's performance can be broken up into two phases: pre- and post-2003. In the seven years spanning 1996 to 2002, the fund underperformed the category every single year, barring 1999 when it delivered a mesmerising 330 per cent (category: 209%). From 2003 onwards, it was on steroids. After an excellent performance that year, it was the best performing fund in its category till 2006. The year 2007 proved to be a dent in its performance when the fund was not even in the top two quartiles. In 2008, it managed to contain its losses, shedding 55 per cent as compared to the category's (-)59 per cent.
The fund manager tends to tilt towards growth stocks but sticks largely to a buy-and-hold strategy. It has profited hugely from its long-term holdings like Shree Cements, Thermax and Praj Industries. But that does not mean the fund manager overlooks opportunistic bets. Its entry and exit from ACC and IPCL in the earlier years, for instance, or its dabbling in certain IPOs.
Recently, the fund has undergone a transformation into a more conservative offering. Most apparent has been the increased allocation to cash and debt from 2006 onwards. While the mid- and small-cap allocation began to decrease that year, the fund took on a large-cap orientation towards the middle of 2007. Simultaneously, the fund also broadened its portfolio. The number of stocks averaged 18 (2001) and slowly inched to 26 (2005). But it was from 2006 onwards that it really changed when it averaged 51 before rising to 77 by 2007, and has been maintained at those levels since. The top five holdings too are not as concentrated.
These changes are what probably hindered the fund's performance in 2007. The average 25 per cent in cash and debt in the first quarter helped nullify the fall. But a high allocation all through the year, with a large-cap tilt, worked against it when the market rose.
While many may frown at this conservative tilt, it makes it a more stable and safer offering. It will now not only appeal to aggressive investors but even conservatives can consider it.
This article was originally published on March 03, 2009.
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