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A Sensational Performer

Volatility and a high downside risk have always been this fund's companions. Quality conscious investors who want to invest in stable large-caps are better advised to stay away from this fund

Magnum Taxgain is one of the two oldest ELSS funds, being launched in March 1993 as a closed-end fund. The fortunes of the fund have fluctuated like a pendulum.

The fund delivered good returns on the eve of its going open-ended in November 1999 on the back of restructuring since 1998, which saw the fund prune its holdings while focusing on a diversified group of stocks. The fund's typical mid-cap holdings like Aftek Infosys and Shyam Telecom during 1999 ran up sharply, as a result of which the fund had a splendid 1999. However, at that time, investors of the fund would have had no idea of what was to follow next.

Like many other funds, Magnum Taxgain went through the most painful period of its life during 2000 and 2001. In 2000, the fund shed a whopping 47 per cent to make it to the bottom of the heap. The fund continued to lose much more than the category through 2001, when it held on to technology stocks which dominated the portfolio till mid-2001.

However, what added to the misery was that the saga continued in 2002 as well. In a year when many other equity funds took to the path of recovery after the tech debacle, Magnum Taxgain continued to lag behind. The fund had increased its exposure to mid-caps, but that did not help much at that time.

The fortunes of the fund turned during the second quarter of 2003, and since then its returns have been nothing less than sensational. With a three year trailing return of 92.50 per cent as on September 3, 2005, the fund lies far ahead of the next best in the category with 62.91 per cent returns.

The fund is managed aggressively, as the fund manager does not hesitate to take huge stock-specific or sector-specific bets. During 2000, the undoing had come as the fund failed to check the tech polarisation of its portfolio with the massive run-up in these counters. Further, the fund went on to bet on momentum plays such as Global Tele-systems and Himachal Futuristic. The unflinching faith in tech counters - which averaged at 50 per cent in 2000, saw the returns sheared away in the ensuing meltdown. However, tech stocks staged a recovery during the last quarter of 2001.

Here again, the fund was caught on the wrong foot, as by that time the fund's exposure to tech stocks had come down to around 10 per cent, thus keeping it from recovering some lost ground.

However, a high exposure to mid-caps and small-caps has helped the fund make the most of the recent mid-cap rally. Currently, basic/engineering stocks are at the heart of its portfolio. As on August 31, 2005 the sector accounted for 20.47 per cent of the portfolio. The fund bets big on smaller companies without fear, and that has contributed to the high volatility that the fund suffers from.