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Successful Shift

This fund chose to be adventurous last year and is doing well. However, the fund manager will need to be agile in case the mid-cap party poops

In February 2004, when we last reviewed Sundaram Taxsaver, the fund was undergoing an image makeover in favour of mid- and small-caps. Looking at its conservative approach in the past, we were quite concerned about the fund's future prospects. However, in a year, the fund has proved that it can also manage an adventurous life with ease-the fund surged 43.78 per cent in 2004 to reserve a place in the top quartile of the category.

Earlier, Sundaram Taxsaver was a conservative player and a middle-of-the-road performer. It would neither zoom exceptionally in rising markets, nor tank in bad times. Its conservative approach helped the fund manage the difficult phases of 2000 and 2001 quite comfortably-the fund lost less than its average peer. In the next two years, when equity markets recovered, its cautious approach resulted in the fund being an average performer. But then that's what the fund aimed for. However, things changed after 2003. The fund changed its tack in December 2003 as it increased its exposure to mid- and small caps considerably. Since then, it's maintaining an average 66 per cent allocation to them-and the result is evident in the fund's performance.

Historically, Sundaram Taxsaver had always banked heavily on large-cap stocks and market gyrations did little damage. When the technology sector crashed in 2000, it was among the least affected funds in the category because its tech exposure was lower than its peers and was well spread-out across quality stocks. Then in the bearish market of 2001, it outperformed its peers by a good margin due to its larger stake in pharma and FMCG.

This fund has reaped the benefits of mid- and small-caps in the booming market of 2004. It would be interesting to see how the fund manages the risks associated with smaller companies in a bearish market. At present, the fund is one of the most volatile funds in the category. But with no single stock crossing 5 per cent of the portfolio, diversification would take care of the excessive volatility. Being a tax-planning fund, Sundaram Taxsaver has time on its side. Its foray into mid- and small-caps has held it in good stead in 2004. The fund manager will need to be agile in case the mid-cap party poops.