Prudential ICICI Tax Plan is among the more volatile funds in the category. But then it more than makes up by also having one of the best risk-adjusted returns. This fund was the second hottest fund of 2003 -- it gained 150 per cent during the calendar year.
A higher exposure to mid-cap auto stocks (average 21 per cent through 2003) like Eicher Motors, Rane Engine Valves and Ucal Fuel Systems have been a boon for this fund. While the share price of Ucal Fuel Systems doubled in 2003, the other two's prices increased three times. That apart, the fund also gained on the back of the rise in prices of bank stocks like SBI and Canara Bank. However, it was too early in selling those stocks. By mid 2003, it had sold most of its bank holdings, which eventually gained more in the next six months.
However, the fund was not as inclined towards mid-caps in 2002 as it is now. And since mid-caps did better than large-caps that year, it under-performed the category. However, it managed to beat its benchmark S&P Nifty by 8 per cent. This was mainly on account of a greater tech allocation initially (between 9/11 and Budget of 2002, tech and PSU stocks gained the most), and the subsequent low exposure to FMCG stocks, which took a beating in the second half of 2002.
The fund did exceptionally well in minimising losses in 2001, which wasn't a great year for the markets-it just lost 6 per cent as against the peers' loss of 20 per cent. Reason: it's dominant allocation to defensives like FMCG and Healthcare stocks (average 30 per cent). By this time, the fund had also reduced the tech exposure to nearly 20 per cent from a high of 50 per cent that it held in 2000.
Due to this high tech exposure (mainly into mid-cap tech stocks), the fund was unable to escape the downfall, and when tech stocks tumbled post March 2000, it ended the year at the bottom. But then on, it has largely avoided higher concentration into any particular sector.
Thus, over the past four-and-a-half years of its existence, the fund has delivered the goods quite diligently. While a current predominant mid-cap stance will continue to make Prudential ICICI Tax Plan more volatile vis-à-vis peers, the three-year lock-in should iron-out this volatility.