Religare Tax Plan: Beats volatility with smart moves

Investors with a low to medium risk appetite can consider Religare Tax Plan. The fund has outperformed its benchmark, the BSE 100, by 5-10 percentage points over one, three and five-year periods. It is a consistent outperformer too, having beaten the benchmark 86 per cent of the time in the last five years on a one-year rolling return basis.

Investment in this fund qualifies for tax deduction within the overall limit of ₹1.5 lakh per annum under Section 80C. Both lumpsum and SIPs have a three-year lock-in period.

Strategy Though Religare Tax Plan does not take big cash and debt calls, it follows a conservative strategy. The fund invests predominantly in large-cap stocks (those with market capitalisation of ₹7,500 crore and above). While it does hold about 20-25 per cent in mid-caps normally, allocations here aren’t tactically raised to ride bull markets. At the same time, when markets turn choppy or fall, the fund is quick to bring down its mid-cap exposure. Holdings in mid-cap stocks in its latest portfolio (January 2016) have reduced to about 15 per cent, compared with 23 per cent a year ago.

In the last one year, the fund has brought down its mid-cap holdings at a time when these stocks have continued to outperform the large-caps. This shows that it churns its portfolio with an eye on valuations as well. In the current market scenario, beaten down large-caps make for a safer bet than mid-caps, many of whose valuations have been sharply re-rated over the last two years based on high growth expectations.

The recent addition of large-cap stocks that have dropped steeply, such as ICICI Bank and Tata Motors, to the portfolio are reflective of the fund’s valuation-based strategy as well. Besides, in contrast to what it did in the 2011 fall, the fund has not increased stake in consumer non-durables as a defensive bet in the last few months of volatility. This may be because valuations in this space have inched up steeply too, with the BSE FMCG index sporting a trailing valuation of 40.8 times, against the Sensex’s 16.9 times.

Portfolio The fund usually has 40-50 stocks with 5-8 per cent exposure in its top holdings. Banking and software are the top sector choices. In the last one year, the fund mostly preferred private banks such as HDFC Bank, Kotak Mahindra Bank and Axis Bank.

In software, it is betting on Infosys, where the holding has been increased by 2.5 per cent to 7.3 in January 2016. It benefited during the 2014 rally by upping stakes in cyclicals such as auto and auto ancillaries and continues to hold about 13 per cent in this space. Dish TV, DB Corp, Redington and MCX are some of the quality mid-cap names in the portfolio.