Alliance Capital Tax Relief '96 is an example of the power of long-term returns from equity. If you had held this fund for the past five years you would have been showered with annualised returns of 43.85 per cent. Over the last eight years the returns are an equally formidable 42.97 per cent annualised.
These returns are the product of a strong showing in good years and holding on to these returns in bad years. Year 2000 was a good example of this when the fund fell just 0.55 per cent against a loss of 20.65 per cent by the Sensex. In fact the fund's performance in that year appears to be magical. With half the portfolio in technology and a good portion in stocks that collapsed massively that year (Global Tele and HFCL, for example) holding on to returns was an amazing achievement.
While in 2001 the fund's losses (down 21 per cent) were slightly worse than the category, one bad year has not been able to dent the its long-term performance. Technology was always the first love for this fund and this remained even in 2002. Average technology exposure at 29 per cent was only slightly lower than the 33 per cent average in 2002. But what changed was the type of technology stocks. Mid caps such as Mastek, Hinduja TMT and Mphasis BFL replaced large-caps such as Satyam and Infosys.
In other sectors too midcap exposure was increased. Thus the fund's banking exposure consisted of J&K Bank and PNB. With 40 per cent of the portfolio in midcaps and most of these stocks registering significant gains the fund was up 15 per cent. This was however less than the average gain made by the fund category, though in line with the benchmark BSE 200.
The banking theme was further strengthened in 2003 with allocation to this sector increasing to an average 23 per cent from 13 per cent in the previous year. Automobiles was another rich hunting ground with Bajaj Auto, Tata Motors and Maruti Udyog propelling returns. Other sectors like healthcare and energy also played a role in giving the fund the 100 per cent plus returns it scored in 2003.
With these numbers the fund has stayed in the category's second quartile in recent years. But the cumulative effect of these returns has put a smile on the face of its investors. Alliance Capital Tax Relief can be considered as a suitable tax saving vehicle.
This article was originally published on March 09, 2004.
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