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A Steady Performer

This fund's year-to-date return of 30 per cent against peer's 41.35 per cent as on September 16, 2005, may not look flashy but a large-cap dominated portfolio and consistent show make it special

Though no tax-planning fund is big, Franklin India Taxshield has dominated the ELSS category. In less than two years of its launch in April 1999, the fund became the largest fund and since January 2001, it had maintained its position till May 2005. In June, though, Magnum Taxgain and HDFC Long Term Advantage funds overtook it.

There's a good reason why Franklin India Taxshield is still one the largest funds of the tax-planning category despite an average performance in the recent past. The fund has a commendable long-term record. Earning handsome returns in a booming market is important but protecting gains when the tide turns unfavourable is crucial. This fund knows this better than anyone else in the category. Its management in volatile periods has been just too good.

For example, it returned 2.11 per cent in 2000 while its average peers were down a massive 22.58 per cent. 2001 was yet another great year for the fund--though it lost 13.33 per cent, it suffered much less than an average fund that ended the year down 20.49 per cent. From 2002 onwards, the fund has been delivering almost in line with the category.

Franklin India Taxshield is the right vehicle for the long-term due to its focused approach and a large-cap dominated portfolio. In fact, domination of large-caps has led to the recent average performance of the fund. Even in the mid-cap-dominated years of 2003 and 2004, the fund did not bet high on them and maintained a large-cap portfolio with an average exposure to large-cap stocks at 76 and 69 per cent, respectively. However, the fund has now started to bet more on mid- and small-cap stocks.

Buy and hold strategy is another speciality of this fund. For instance, SBI and Infosys have found permanent spots in the portfolio since 2000. Even when Infosys tumbled in April 2003, the fund stuck to the stock and reduced exposure only when the price climbed to pre-April level.

Technology has almost always dominated the portfolio here. Launched before the tech-led bull-run of 1999-2000, it managed to fully capitalise on the boom with a tech heavy portfolio (70 per cent in January 2000). This led to huge inflows into the fund--its unit capital grew 10 times in 2000. The fund then deployed the new money into old economy stocks, which reduced the impact when tech collapsed. Consequently, it was among the three funds that ended 2000 on a positive note.

Despite its recent underperformance, we feel Franklin India Taxshield is a worthy choice for long-term investors.