The Hindu Business Line : PruICICI Tax: Cut exposures

INVESTORS in the open-end tax savings plan of Prudential ICICI Mutual Fund can contemplate paring exposures in the fund and re-investing in other tax-saving equity funds with a better track record. This recommendation is appropriate for investors who have completed the mandatory lock-in period of three years.

Despite a fairly active fund management style, the fund has not done too well when compared to most of its peer tax saving funds, in particular, and equity funds, in general.

No doubt, the fund has outperformed the broad market as represented by the Nifty since August 1999 and in the last one year. But in the past year, a host of other funds have done better.

The fund had in January cut exposures in a large number of stocks and lifted its cash position to around 24 per cent pf net assets from 3.9 per cent.

If the fund still has a sizeable cash position, it provides a cushion to the NAV that investors can take advantage of and pare exposures.

The returns since launch have been around 6 per cent. In the same period, the Nifty shed 7.1 per cent. In this backdrop, investors can use any market uptrend to cut exposures.

Suitability: The fund has a diversified portfolio. But due to an aggressive fund management style and a sizeable focus on mid-cap stocks, the risk levels are high side. The returns so far have not been adequate enough for the underlying risk element.

Investors who have not completed the lock-in period can switch to the Dividend Plan — if they are now in the Growth Plan — due to its superior tax efficiency. Dividends are exempt from tax.

Portfolio overview: Auto sector holdings account for 22 per cent of net assets. Tata Engineering, Bajaj Auto and Eicher form core holdings. The pay-off will depend largely on the continuance of the auto sector uptrend. Banks and pharmaceuticals form the other two major sector exposures of the fund.

The top end of the portfolio is focussed on large-cap stocks. But exposures to stocks such as Zee, Eicher Motors, Aptech, Apollo Hospitals, Trent, Essel Propack, Tata Telecom, Crompton Greaves and Ucal Fuel enhance the risk profile.

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