You can't afford to ignore this fund. An ability to perform in a booming market and guard the gains in testing times makes it special.
In 2004 and 2003 rally, the fund put up a brilliant show, and won top quartile positions with returns of 49.38 and 121.06 per cent, respectively. But this is not its strongest point. It demonstrated its real worth in the bearish markets of 2000 and 2001.
When the tech sector collapsed in March 2000, the fund quickly reduced exposure to the sector. It wisely deployed fresh funds that kept pouring in towards defensives like automobile and FMCG stocks. This turned out to be a fruitful step-HDFC TaxSaver ended 2000 up 5.74 per cent when the average peers were down a whopping 22.58 per cent. Between May 2000 and July 2001, the fund banked heavily (an average 10 per cent) on bonds, which provided a cushion. Again in 2001, the fund managed its downside quite well. Thanks to an average 28 per cent exposure to FMCG and pharma stocks, the fund lost only 4.51 per cent against the category average loss of 20.49 per cent.
Year 2002 was the only rough patch in the otherwise sparkling track record of the fund. A higher exposure to PSU stocks that could not hold due to the postponement of disinvestment marred the fund's performance; it ended up in the bottom half of the category. A higher stake in the FMCG sector, which remained out of favour, and a low allocation to mid-caps, the key market drivers of 2002, dented its performance.
But since then, the fund has never looked back. It outperformed its peers consistently in all the four quarters of 2004 and became the second best fund in the category. In recent times, the fund started taking higher bets on relatively risky but rewarding mid- and small-cap stocks. Exposure to mid- and small-caps has gone up from 43 per cent in December 2003 to 71 per cent in December 2004. This has resulted into smart gains for the fund. Low volatility adds to the charm of this fund.
HDFC TaxSaver has everything that one looks for in a good tax-planning fund. The fund manager has also proved that he can withstand difficult times with ease and earn handsome returns in bull markets. HDFC TaxSaver deserves a position in all equity portfolios.
This article was originally published on April 22, 2005.
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