What is the investment strategy adopted in managing ICICI Pru Tax Plan?
Since 2009, this fund is like a flexi-cap fund with about 65 per cent exposure in large-caps and the balance in mid-caps. The flexi-cap approach is to bring in stability and capitalise on opportunities present across market caps. The management style is slightly contrarian and value-focussed than momentum focussed. The portfolio typically comprises stocks accumulated when valuations are attractive. On the other hand, allocation to stocks which have outperformed the benchmark significantly is reduced as the stocks move into the overvalued zone. While buying or selling, the key focus is therefore on the value parameters arrived at with the support of our in-house research bandwidth of our sectoral analysts. Notwithstanding short-term performance, the tax plan being a 3-year lock in product provides the ability to bet on stocks expected to deliver over a 3-year horizon without being worried about facing daily redemptions or having to sell a stock at a time and at a price that is not favourable. This is a large fund and liquidity management is of significance specifically in the mid- and small-cap space.
How differently do you manage ICICI Pru Tax Plan compared to ICICI Pru Child Care-Gift fund?
The primary difference between the Child Care-Gift fund and the Tax Plan is the scale of the fund: Tax Plan is much larger in asset size. The Child Care-Gift, till May, 2011, was a 100 per cent mid- and small-cap fund. However, given the relative risks with mid- and small-caps, endeavour is to make it a flexi-cap fund over time. The Child Care-Gift fund has 20 per cent large-cap exposure and around 60 per cent in mid-caps while the fund is invested around 80 per cent. The fund follows a Price/Book model to decide on equity allocation; thereby allowing the fund to go down to 65 per cent equity allocation in over-heated markets, while being 100 per cent invested in depressed markets. The Tax Plan on the other hand has a mandate to be at least 90 per cent allocated.
There are certain opportunities in the market which the Gift fund can access given its small size, which allows us to build a position in small- and mid-cap stock which is attractively valued. This opportunity is relatively restricted in the case of the Tax Plan. Likewise, we cannot use derivatives strategy in the case of the Tax Plan, whereas in the Child Care-Gift Plan derivatives are selectively used.
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