Mutual Fund - Birla Sun Life Tax Relief Fund : Analysis

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Investors looking for tax saving options for their portfolio can consider the Birla Sun Life Tax Relief 96, in the light of its good recent, as well as five-year, performance record. The fund carries a three-year lock-in period common to all tax saving mutual funds.

Its recent performance has been significantly superior to the tax planning as well as diversified equity fund category average. The fund sports one-year and three year returns of about 41 per cent on an annualised basis, well above the 38 per cent and 36 per cent, respectively, managed by its benchmark index — the BSE 200. Returns for these periods are also well above the category average for diversified equity funds.

Suitability: Amidst the widely divergent and often aggressive strategies pursued by tax planning funds, Birla Sun Life Tax Relief has adhered to a fairly conservative strategy in recent years. For one, exposure to top mid-cap stocks has been restricted to less than a third of the assets managed, over the past two years.

Two, the fund has stayed with most of its stocks for extended periods, with limited churn in holdings over the past year. The fund, however, does hold a fairly focused portfolio with the top three sectors accounting for nearly half of the assets and the top five stocks accounting for a third of the portfolio. However, a preference for frontline stocks restricts the risks associated with such a strategy. Overall, the fund would fit an investor with an average appetite for equity risk.

Performance: The fund's returns since its launch in 1996 are nothing short of impressive, though it has faced its share of ups and downs over this 12-year period. An initial investment of Rs 1,000 in this fund has grown to Rs 1.1 lakh as of January this year.

However, investors entering the fund at this juncture would have to substantially temper their expectations, given that stock market returns of the past three years may not be replicable. Investors should also note that the fund's track record over its initial five-year period is not relevant now, as the fund has witnessed both ownership (moving from Alliance Capital to Birla Sun Life) and fund manager changes. On this score, the recent performance record, as well as stock choices, are confidence-inspiring.

Over the past year, the fund has retained a clear preference for the better-known names of India Inc, whether from the large cap or mid-cap basket. Stocks such as L&T, Reliance Industries, ICICI Bank and Reliance Energy from the index basket have been held along with mid/small caps such as United Breweries, ICRA and India Infoline among the fund's top holdings.

Mid-cap exposures have risen in the past six months, from about 26 per cent of assets to 38 per cent over the past year. This is probably because of more attractively valued stocks in this space, relative to large caps. However, with the mid-cap exposure capped at 38 per cent even in the January portfolio, the portfolio retains a tilt towards large-caps.

The fund has also opted not to churn its portfolio very aggressively over the year, despite the volatile market conditions. Over two-thirds of the holdings have stayed on in the portfolio over the past one year, while only a third of the stocks have been replaced. In terms of sector choices, financials, banks and capital goods have remained the top preferences for an extended period.