With a corpus of just Rs 198 crore (Rs 1.98 billion), Principal Tax Savings maintains a portfolio of 35-40 stocks. The assets are distributed in such a way that no single holding overwhelmingly dominates the portfolio.

At present, the top five holdings account for 25 per cent of its assets. The portfolio is well-diversified at the sector level as well. Currently, financial services is the top sector holding, accounting for 16.20 per cent, followed by metals (14 per cent) and services (13.22 per cent).

Despite a well-balanced portfolio, Principal Tax Savings is more daring than most members of its group. Till the last quarter of 2005, the fund was dominated by large-cap stocks only to be gradually displaced by smaller ones.

The fund manager dabbles in lesser known names, and that too in significant proportions. With a 45 per cent allocation, he confidently takes small-cap wagers. At Rs 3,000 crore (Rs 30 billion), the average market cap of its portfolio is among the lowest in the tax-saving category. His daring moves have not let him down.

The fund has consistently beaten the category average over the one-year, three-year and five-year period. This year, it delivered returns of 60.3 per cent so far much ahead of an average peer at 44.6 per cent.

Interested investors should remember that this is meant to be a bold offering. With a chunk of its investments in small-cap stocks, some nasty surprises cannot be totally ruled out.