Once a hot favourite in the tax planning category, HDFC Tax Saver has delivered a patchy show in the last four years, starting from 2012. While it has managed to stay ahead of benchmarks, sluggish returns vis-à-vis its peers have seen its ratings slip from 4 stars in early 2013 to 1 star now. While the fund's 7 and 10 year return are quite healthy, both 5 and 3 year returns are below the category averages by 3-4 percentage points. The asset size has dipped from over R5,200 crore in February 2015 to R4,424 crore by January 2016. Like other HDFC funds, this fund follows a blend of value and growth investing. But its tilt towards low PE stocks in an expensive market has become more pronounced in the last couple of years. A heavily mid-cap tilted fund until 2012, it has taken to an overweight position in large-cap stocks in the last couple of years. This tilt is likely to have reduced portfolio risks, but may have reduced the fund's overall returns too, in a period where mid-cap stocks sharply outperformed large-caps.

Though the fund did participate in the bull run of 2014, its sharply lower returns in the last one year have dragged the overall performance. Like other HDFC funds, the slowdown appears to be attributable to the fund's heavy bets on pro-cyclical sectors of the economy, which haven't paid off amid a delayed recovery. As of February 2016, the fund had overweight positions in financials, engineering, construction and was under-weight in FMCG, healthcare and automobiles. While this contrary take on the economy has cost the fund in terms of returns, it has contributed to reasonable portfolio PE of 15, a sizeable discount to the market.

The fund's big bet on the economy can pay off strongly if the much delayed economic recovery gathers steam. But its recent returns have been the casualty of the fund sticking to its guns on this bet.