HDFC Taxsaver offers a rare combination of low risk and high returns. One of the least volatile funds in the category, HDFC Taxsaver has delivered an awesome 43.07 per cent annual return since launch in March 1996. No other equity fund is even near to this long-term performance record.
The recent bull run has strengthened the fund's superlative track record. In 2004 and 2003 rallies, it earned top quartile positions with returns of 49.38 and 121.06 per cent, respectively. Till October 26, 2005, this year, the fund has raced to return 50.72 per cent, much better than the average peer's 29.06 per cent. But what makes this fund special is not how it exploits the booming market, but the way it manages the downside risk.
To understand why this fund deserves a place as a core fund in the portfolio, investors should recall its performance in the bearish markets of 2000 and 2001.
After the tech bubble burst in March 2000, the fund cut exposure to the sector and started to deploy fresh funds in defensives like automobile and FMCG stocks. This saved the fund from the bloodbath of 2000. 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 otherwise sparkling track record of the fund. A higher exposure to public sector undertakings and FMCG stocks and a low allocation to mid-caps dented its performance. Since then, the fund has never looked back.
In recent times, the fund had started taking higher bets on relatively risky but rewarding mid- and small-cap stocks. However, with markets moving into an uncharted territory, the fund has once again started moving towards large-cap stocks.
Exposure to small-cap stocks has also dipped from a high of 48.92 per cent in March last year to only 14.36 per cent in September 2005.