Religare Tax Plan

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If you are looking to avail tax deductions and are willing to hold some mid-cap stocks in your portfolio, then Religare Tax Plan will fit your bill. The fund's return of 9.3 per cent annually over the last three years may seem lack luster but that is a good six percentage points over its benchmark BSE 100.

Why invest?

The fund's ability to limit volatility, despite holding as much as half of its assets in mid caps inspires confidence. In the 2006-07 rally, tax-saving funds that held high exposure to mid caps bore the brunt of market correction. A number of them shifted their focus to large caps after that. But Religare Tax Plan has chosen to hold a good proportion of mid-cap stocks. It in fact has a higher allocation to this market-cap segment compared with its aggressive peer ICICI Pru Tax Plan.

We believe its ability to contain declines and yet, hold a quality portfolio of mid-cap stocks with healthy exposure to large-caps, will ensure the fund benefits from a rally. While such a rally may not happen anytime soon, the pockets of value in the mid-cap segment are likely to ensure that the returns are magnified when a re-rating happens.

Suitability

Religare Tax Plan is suitable for investors with some risk appetite. For those looking for pure large-cap plays, Franklin India Tax Shied may be a better scheme to go for. It is noteworthy that the fund will be subject to a three-year lock-in, given its tax-saving benefit under Section 80C. If you go for the SIP option, every installment will be subject to a similar lock-in. To avoid this, if you wish to invest lump sums, consider investing in 2-3 installments – either when you have surplus or when you see a broad market correction of over 5 per cent.

Consider holding a tax-saving fund in addition to traditional small saving schemes with tax benefits. This will provide a good hedge for the risks in equity.

Performance

Religare Tax Plan fares in the top three in the performance chart of tax-saving funds over a five-year period. Although returns are in single digits as a result of a high base five years ago (November 2007), it is still better than the average return of diversified equity funds as well the negative returns of key indices over this period. The fund also boasts of consistent performance, beating its benchmark 90 per cent of the times in the last three years, on a rolling return basis.Its consistency is also proved by its limited deviation from its mean returns, compared with ICICI Pru Tax Plan and HDFC TaxSaver. Its average one-year returns (rolling three-year period) at 22 per cent also suggests that it delivers high returns irrespective of point of entry. Its ability to contain declines was proved both in 2008 and 2011.

Portfolio

Religare Tax Plan appears to be slowly building a portfolio of cyclical value-cum-growth stocks, from a more defensive stock up in end-2011. For instance, it has increased exposure to banking and financial sectors and cut down on software stocks. While FMCG continues to be in the top three sector holdings, it has pruned exposure to this space.All this augurs well with our theory that the fund is preparing grounds for gaining in a rally, albeit nothing visible in the near term. While the usual large-cap suspects of ITC, Lupin, HDFC Bank and TCS are present in the portfolio, there are also quite a few premium mid-cap picks such as VA Tech Wabag, Gujarat Pipavav Port and Bajaj Corp. Other mid-caps such as Kalpataru Power & Transmission, Tecpro Systems and Redington (India) Ltd., though, offer value.The fund is managed by Vetri Subramaniam

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

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