ICICI Prudential Tax Plan: Tax deduction with high risk

ICICI Prudential Tax Plan is meant for investors who want to get a tax deduction under Section 80C of the Income Tax Act by taking a higher amount of risk, says Arnav Pandya.

According to Pandya, the presence of an exposure to small and mid caps can lead to higher volatility in the performance so those investors who are willing tolerate such a situation can consider this fund for their exposure considering that the investment has a three year lock in.

ICICI Prudential Tax Plan

Nature: Equity Linked Savings Scheme

Inception: August 1999

Assets under Management: Rs 1259 crore at the end of September 2011

Fund Managers: Chintan Haria & Rajat Chandak

Analysis

• This is a tax saving fund and its tax benefits will end once the new Direct Tax Code comes into effect.  At the end of March 2009 the fund had the highest exposure to banks followed by pharmaceuticals and consumer non durables. There was a presence of mid caps as well as some small caps in the portfolio apart from the large caps so the investment style extended across market caps.  The top 6 holdings of the fund all had an exposure of around 5% and these included Bharti, Reliance Industries, HDFC Bank, Cadila Healthcare, Corporation Bank and Infosys. The fund was underperforming its benchmark the S&P CNX Nifty over the one and three year time periods though outperforming on  the five year time frame.

• Six months later there was a change in the top sectors as pharmaceuticals displaced banks to the second spot. Petroleum products and consumer non durables were the other sectors with a high exposure. Reliance Industries was now the top exposure with a 8% share followed by Cadila Healthcare, ONGC, ITC and Corporation Bank. The fund had nearly 6% of its assets in short term debt instruments and was outperforming the benchmark over the one and five year time periods. The fund had a tilt towards large caps and the portfolio turnover ratio was around 2.3 times.

• By the end of March 2010 the portfolio witnessed another change and the exposure to small caps widened as compared to the mid caps. Now software was at the top of the sector holdings followed by finance and pharmaceuticals. The funds turnover ratio remained above 2 times. Its top holdings were Reliance Industries, Infosys, Sterlite, Bharti and Cadila Healthcare. The slightly aggressive approach continued as the top 5 holding had nearly one third of the total portfolio exposure. The fund was now outperforming its benchmark over all time periods since its inception.

• Banks were once again the top sector by the end of September 2010 followed by pharmaceuticals and software. Among the individual stocks Infosys was the top holding followed by Bharti and Cadila Healthcare. The fund reduced its portfolio turnover to 1.5 times and while it remained an outperformer over the one and three year time periods it fell behind on the five year comparison.

• The fund maintained the ranking of the top three sectors over the last six months though the difference was that the exposure to banks shot up to 15% of the portfolio. While Reliance Industries, Cadila Healthcare, and Bharti were the top holdings there were now 3 banks on  the top 10 holding list. The fund was an outperformer only on the 3 year time frame and the turnover ratio had dropped to 1 times which showed that the fund was holding its investments for a longer time period.

• By the end of September 2011 the fund had a new benchmark which was the S&P CNX 500. Banks remained the top exposure for the fund followed by software and petroleum products. Reliance Industries had an exposure of 10% of the portfolio while Infosys and Bharti were among the other top holdings. Cairn India was also among the top 10 holdings while in the banks exposure the Standard Chartered PLC IDR exposure also brought it into this list. The fund was outperforming its benchmark over the one and three year time periods.

• This fund is meant for investors who want to get a tax deduction under Section 80C of the Income Tax Act by taking a higher amount of risk. The presence of an exposure to small and mid caps can lead to higher volatility in the performance so those investors who are willing tolerate such a situation can consider this fund for their exposure considering that the investment  has a three year lock in.

Disclaimer: Views expressed in this article are entirely personal.
arnavpandya@hotmail.com.

For full details of the fund including NAV performance, portfolio, and peer comparison click here.