IDBI Principal Tax Saving Fund (erstwhile IDBI Tax I-Nit) started as a small closed-end tax saving fund in 1996. It was converted into an open-end fund in April 2001. Investment of Rs. 10,000 in the fund entails a tax rebate u/s 88 and carries a lock-in of three years.
Carrying an unfocussed and wildly diversified portfolio of over nearly 100 stocks, the fund went nowhere in its first two and half years. Little consolidation and the start of tech lead rally in early 1999 gave it an opportune lift. This coincided with the start of repurchase after 3-years lock-in period and the fund's asset base shrunk by 30 percent.
From April 1999, the fund had a new manager at helm, which was followed by induction of Principal as a new owner in AMC. The fund stresses more on return consistency, discipline and risk control. This was visible in consolidation of the portfolio without getting overly concentrated. On strategy, the fund manager Tridib Pathak claims an eye on spotting undervalued stocks emphasizing business fundamental, without any style affiliation to growth or value investing.
The fund's changed track quickly yielded results in 1999. It was up 128 percent but lower than many peers. But the fund kept away from technology momentum plays. And its shift towards defensive sectors in 2000 helped it hold the ground. Though it still lost 18 percent, against 22 percent loss of an average tax saver. In 2001 again, the fund lost 18 percent, a little less than the average.
The fund has been well diversified across large and mid-cap stocks. And has been a contrarian with some of its big bets like the Corporation Bank and Bluedart Express. Even absence of automobile stocks in the portfolio reflects that. Besides these broad changes, its early emphasis on PSU stocks has done very well for the fund in recent times. It had almost 20 percent allocation to PSU stocks -- Bharat Petroleum, Hindustan Petroleum, Container Corp and NALCO before March 2001. Though it reduced its exposure in oil stocks after September to rebuild again. With this it gained 14 percent in last quarter of 2001 and has leaped another 24 percent in 2001, through March 26.
By its shape and behaviour the fund looks like a fine long-term growth pick.