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Mutual Fund Review: Religare Tax Plan

This one has made its mark in a short period of time. The fund's ability to provide good downside protection capabilities accompanied with decent returns during markets rallies will reward investors over the long run.

 

Strategy


The fund will invest across market capitalisation and sectors utilising a bottom-up approach. It will spread its assets over 20 to 50 stocks without being overly diversified.

 

Fund Insight


With an allocation of over 60 per cent to mid and small caps and a tightly packed portfolio of around 35 stocks, one would have expected the fund to be thrashed in the market downturn of 2008. But its fall of around 50 per cent was 6 per cent below the category average (fourth lowest in the category) and 5 per cent less than the BSE 100, that too without a high cash exposure.


It was the stock picking that made the difference. Out of the 38 stocks which appeared for six months or more in the fund's portfolio in 2008, 16 (around half the fund's portfolio) experienced a fall lower than Sensex.


The fund's focus on bottom-up stock picking leads to quality picks. The mid-cap picks are biased in favour of growth, quality of balance sheet and strength of underlying cash flow rather than sheer undervaluation plays. Momentum and cyclical plays are avoided, which may result in subdued returns during market rallies. In 2009, the fund stayed away from Metals which had a superb run that year. The late entry into Technology also hit performance.
Selective (and unusual) stock picking is the strategy of the fund. Though one may have to wait a while for the bets to play out.

 

Portfolio Insight


The fund follows a multi-cap strategy. Although benchmarked against BSE 100, the base universe is the BSE 200, to which stocks in the CNX Midcap index are added. Also, a few handpicked companies from the BSE Small Cap and BSE PSU indices are considered. This universe is reviewed every quarter. The fund is well diversified with around 52 stocks. Under normal circumstances, allocation to a single stock is restricted to 6 per cent.

 

Risks


Aggressive sector bets are not unusual. For instance, in December 2008, Financial Services and Petroleum together accounted for almost 50 per cent of the fund's portfolio. Such positions could impact the fund's performance if they do not play out.

 

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