An outstanding long-term performance record (the fund has generated 38.15 per cent annualised return since its launch in April 1999), extremely low volatility, buy-and-hold strategy and ability to protect returns in tough times make this fund apt for any tax-planning portfolio. No wonder, it has remained one of the most popular ELSS funds.
The fund's average performance in recent times should not worry investors. Of course, it has lagged behind some of its aggressive peers, who have earned hot returns through a portfolio laden with mid- and small-cap stocks, but this second least volatile fund's consistency is hard to beat. This fund can be your best friend in uncertain times. For instance, it gained 2.11 per cent in 2000 while its average peers were down a massive 22.58 per cent. It capitalised on the tech boom with a tech heavy portfolio (70 per cent in January 2000). This triggered huge inflows into the fund-and its unit capital grew 10 times in 2000, but the fund manager wisely deployed the new money into old economy stocks, which reduced the impact when tech stocks collapsed. Consequently, it was among the three funds that ended 2000 on a positive note.
Year 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 returns almost in line with the category. Through its life, it has almost always outperformed average peers in tough times.
A strong belief in buy-and-hold strategy is another plus here. The average life of a stock has been a healthy one and a half years. Stocks like Infosys, Grasim Industries, Hindalco etc have now become permanent members of the portfolio. 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.
Having missed the mid- and small-cap bus, the fund has taken a 40 per cent exposure to this class of stocks since February 2005. To manage the risk, the fund has diversified the portfolio spread over 45-55 stocks now. Nevertheless, the fund continues to under-perform. But its large-cap focus and its ability to protect the downside make this fund a worthy choice.
This article was originally published on December 09, 2005.
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