This is an all-weather fund. Whether the markets are cheerful or downbeat, HDFC Taxsaver rarely let its investors down. The fund three and five-year returns are the best in the category. Its low volatility adds to its attractiveness making it a suitable core holding for investors seeking long-term growth and tax benefits.
This fund has largely stuck to large-cap stocks. Its top picks like Bharat Electronics, ITC and Grasim have provided a big boost to returns last year. In 2003, the fund gained 121 per cent. However, witnessing a greater surge in the mid-cap segment, the fund had slightly tilted its portfolio towards them since August 2003. Its current top holdings include mid-caps like Crompton Greaves and Swaraj Mazda, whose prices have almost quadrupled in the past one-year.
2002 was the only year when HDFC Taxsaver underperformed its peers. This was mainly because of its higher exposure to the PSU stocks, whose prices crashed following the postponement of disinvestment. It had, in fact, sold BPCL at the bottom at Rs 190 in November 2002. Moreover, the fund's low allocation to mid-caps, which were the key market driver in 2002 and a higher FMCG stake, which has remained out of favour, dented its performance later that year.
However, the fund had done exceptionally well in bearish market of 2000 and 2001. The fund was quick in reducing the tech holding when the sector collapsed in March 2000. Also, it deployed the new money that kept pouring in into defensives like automobile and FMCG stocks. As a result, HDFC Taxsaver ended 2000 in black - among the only two funds to do so. Moreover, between May 2000 and July 2001 it also parked an average 10 per cent of its assets into bonds, which provided cushion badly needed during that time. The fund's considerable exposure to defensives (average 28 per cent)-FMCG initially and later healthcare-helped it put in a decent show in 2001.
The fund has been the least volatile tax-planning fund over the long haul, thanks to its aversion to making big bets on technology and mid-caps. You won't find a better long-term risk/reward profile in the category than what HDFC Taxsaver commands, thus making it a suitable core holding for investors seeking long-term growth coupled with tax benefits. It's clearly a long-run winner.