Alliance Tax Relief '96 (ACTR), an open-end tax-saving equity fund, seeks capital appreciation. Investments of Rs. 10,000 in the fund in the current financial year will entail a 20 percent tax rebate under section 88 and cannot be withdrawn before three years.
In its six-year history, Alliance Tax Relief has put up big numbers – total return of 42.69 per cent to the initial investor. This is despite the negative returns in recent years, losing 21 percent in 2001. It started as a small closed-end fund and converted into an open-end structure in July 1999. The fund fully exploited its small and stable asset base, with a 3-year lock period. Its stock selection strategy – stocks with impressive ROCE, RONW with internally generated funds. The fund has carried a quality but concentrated portfolio in select sectors and stocks. In its initial years it was heavily in defensive sectors -- automobile, consumer and energy stocks gaining 66 percent in 1997 and 50 percent in 1998. Then the portfolio was loaded with racy technology stocks and went ballistic with the tech boom to gain 289 percent in 1999.
The fund remained a die-hard believer of technology stocks. With a sizable allocation to this out-of favour sector through 2001, it suffered a 21 percent decline. Now the fund has tamed its bet on technology stocks rotating into banking, automobiles and certain health-care names.
Alliance Tax Relief hasn't done much to make it look good in recent times. After taking a hit in 2000's tech wreck, the aggressive fund has continued to get pounded through 2001 as well. Given its strategy and the 3-year lock-in period for new investors, it can afford being bad over short-time horizons. But, it has all of the qualities we look for in a long-term holding: proven management, solid long-term record and quality portfolio that is selectively diversified now. In a growth lead market, the fund can make a big leap to dwarf the tax-break. But it will call for patience.