This is a fund which has earned its stripes by beating its benchmark every year except the first one (2009). This performance has earned it a four-star rating for much of the last three years.

IDFC Tax Advantage Fund has a higher-than-category allocation to both mid-cap and small-cap stocks. Mid caps have made up anywhere between 30 and 45 per cent of the portfolio. Large caps have accounted for 40-50 per cent. Small caps have made up 20 odd per cent. The fund is managed on the basis of a growth-at-a-reasonable-price philosophy. It does take both cash and debt calls on occasion. The fund believes in identifying companies based on a deep understanding of the industry-growth potential and interaction with managements.

IDFC Tax Advantage Fund is yet to be tested in a severe bear market, as it was launched after 2008. Its record in 2011 showed ability to contain downside. The fund has beaten its benchmark by sizeable margins of 5-6 percentage points over three and five years, though one-year returns show it lagging behind the category. The fund hasn't been a huge category outperformer but a return of 20 per cent (since launch) is not to be scoffed at. The higher mid- and small-cap tilt, however, may peg up volatility if the latter's high valuations prompt a correction.

Investors can take smaller exposures to this fund until a longer track record is at hand.