The fund's ability to limit volatility, despite holding as much as half of its assets in mid caps inspires confidence. In the 2006-07 rally, tax-saving funds that held high exposure to mid caps bore the brunt of market correction. A number of them shifted their focus to large caps after that. But Religare Tax Plan has chosen to hold a good proportion of mid-cap stocks. It in fact has a higher allocation to this market-cap segment compared with its aggressive peer ICICI Pru Tax Plan.

We believe its ability to contain declines and yet, hold a quality portfolio of mid-cap stocks with healthy exposure to large-caps, will ensure the fund benefits from a rally. While such a rally may not happen anytime soon, the pockets of value in the mid-cap segment are likely to ensure that the returns are magnified when a re-rating happens.

Suitability

Religare Tax Plan is suitable for investors with some risk appetite. For those looking for pure large-cap plays, Franklin India Tax Shied may be a better scheme to go for. It is noteworthy that the fund will be subject to a three-year lock-in, given its tax-saving benefit under Section 80C. If you go for the SIP option, every installment will be subject to a similar lock-in. To avoid this, if you wish to invest lump sums, consider investing in 2-3 installments – either when you have surplus or when you see a broad market correction of over 5 per cent.

Consider holding a tax-saving fund in addition to traditional small saving schemes with tax benefits. This will provide a good hedge for the risks in equity.

Performance