pratikbharti
Pratik Bharti
There are mutual funds and then there are more mutual funds. If an ordinary investor has to sift through all the mutual funds and then make her/ his decision s/ he would take almost an eternity to put her/ his money in the right funds.
And then, there is the volatility witnessed in the Indian stock markets, especially in these times when India's benchmark 30-stock index, the BSE Sensex is nearing 20,000 points, a level never ever seen before.
Does the current situation mean the markets are risky and investors should stop putting their money in search of reasonable returns? Of course not.
Here's an analysis of 25 mutual funds by Value Research that will create long-term value for you. In a five-part series that begins today, we present the first five mutual funds with the rest to follow on subsequent days.
Individual needs may vary so view them in conjunction with your overall portfolio and risk profile.
# 1: Birla Equity Plan -- Swift moves
Equity: Tax Planning
Information
Website: www.birlasunlife.com
NAV: Rs 72.65 (28/09)
Entry Load: 2.25 per cent for investment less than RS 5 crore
Exit Load: Nil
Expense Ratio: 2.49 per cent
Launch: Feb '99
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: BSE Sensex
Portfolio Manager: Sanjay Chawla
You won't catch the fund manager napping here.
Aggressive portfolio churning, swift moves and strategically timed entry and exit into opportunistic sectors are what this fund is all about. The fund has displayed an uncanny ability to sense an opportunity at the right time. It did so during the third quarter of 2006 by timing its entry in banking stocks to perfection.
Moreover, the fund manager does not mind going against the herd.
For instance, the fund has maintained its position in the automobile sector at a high of over 13 per cent through this bear phase while the average category exposure to the sector has hovered around 7 per cent.
Despite frequent fund manager changes (the current one is the fifth), the fund has not skipped a beat and continues to outshine the pack. Barring one year, the fund has consistently beaten the category returns over the past five years.
But the latest fund manager change has brought about a visible alteration in the portfolio. From the earlier 35 stocks, scattered evenly across market cap segments, the portfolio has expanded to 44. This may dilute the risk, but also the returns. In a more concentrated portfolio, each stock has a significant impact on the fund's returns.
Perhaps, these are early signs of a shift in strategy towards a more conservative bend. But aggressive investors should not jump ship just yet. Going by the past performance, excellent stock picks and the track record of the fund house, it would be wise to adopt a wait-and-watch approach.
# 2: Birla Mid Cap -- Style statement
Equity: Diversified
Website: birlasunlife.com
NAV: Rs 86.77 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 crore
Exit Load: 0.5 per cent for redemption within 180 days and investment less than Rs 5 crore
Expense Ratio: 2.37 per cent
Launch: Oct '02
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: CNX Midcap
Portfolio Manager: A Balasubramanian, Sanjay Chawla
It's tough to nail down this one's style.
Consider this. The fund invests aggressively in small companies, but ensures that a larger part of its portfolio is invested in relatively bigger mid-caps. At Rs 4,051 crore, the weighted average market capitalisation of its portfolio is pretty high.
The fund manager does churn the portfolio considerably and frequently tries out new stocks. Yet, stocks that are held for a period of 30-odd months at a stretch do make an appearance.
He brazenly sticks to his convictions and goes against the herd, as suggested by some of his sector bets. Yet he walks down the path of high diversification. His portfolio now has 65 stocks, up from the 40-45 range. None of the stocks account for more than 3 per cent of the assets.
But going by the fine numbers he has been putting in, there's reason to think he knows what he is doing. Over the last three years, Birla Mid Cap has delivered an annualized return of 53 per cent (as on October 11, 2007) to command a place in the top quartile of the category. It has never fallen below a four-star rating in its 24-month rating history.
Being quite small vis-a-vis other mid-cap funds, it is nimble offering with just Rs 493 crore. The increase in corpus over the past 12 months (from Rs 159 crore) is probably the reason for the portfolio diversification.
In a nutshell, the fund does not display characteristics of being highly aggressive, especially given the amount of diversification and the kind of mid-caps it invest in. This is probably as safe as you can get with a mid-cap fund.
# 3: Birla Sun Life Equity -- Steady evolution
Equity: Diversified
Website: www.birlasunlife.com
NAV: Rs 240.27 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 crore
Exit Load: 0.5 per cent for redemption within 180 days and investment less than Rs 5 crore
Expense Ratio: 2.27 per cent
Launch: Aug '98
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: BSE 200
Portfolio Manager: Mahesh Patil
This erstwhile Alliance fund seems to be regaining its days of glory but without the brashness of its youth. After a dazzling performance of 280 per cent (1999) and a miserable two years (2001, 2002), it now seems to be back on track.
Like a chameleon, this one constantly changed its colours. In its initial years, it was a dangerously focused offering with extreme concentration in few technology stocks, followed by a stream of small holdings.
It paid off handsomely before falling in the doldrums. What followed (since 2003) wee smaller portfolios of 30-35 stocks with the top five holdings consuming 35 per cent of assets. This brought in the much-needed sectoral diversity.
A good move at this time was the identification of the mid-cap rally early enough.
In September 2005, Birla Sun Life acquired the fund. The natural consequence was a significant toning down of the aggression. The number of stocks gradually rose to around 50 and the top five holdings now add up to just around 20 per cent of the assets, which remain evenly spread across large-and mid-caps. What's more, the fund manager does not hesitate to shift a considerable part of assets to cash at the first sign of trouble.
Despite this ongoing transformation, the fund has evolved to be a steady, well-diversified, multi-cap offering that has consistently beaten the category average. With erratic performances and concentrated portfolios being a trend of the past, this fund is suitable to be among the core holdings of your portfolio.
# 4: DSPML Balanced -- Bankable choice
Hybrid: Equity-oriented
Website: www.dspmlmutualfund.com/
NAV: Rs 48.128 (28/09)
Entry Load: 1 per cent
Exit Load: 1.25 per cent for redemption within 365 days
Expense Ratio: 1.98 per cent
Launch: May '99
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: Crisil Balanced Fund Index
Portfolio Manager: Apoorva Shah
Though it has delivered above average performances, and even managed top quartile returns in a few years, DSPML Balanced does not turn heads.
Its tactical asset allocation has done little to deliver impressively. Over the past 21 months, the equity exposure has fluctuated in a wide range of 9 percentage points. According to the September 2007 portfolio, the fund has parked 72 per cent of its assets in equity.
The tilt towards mid- and small-cap stocks from December 2006 is here to stay. This automatically gives the fund a riskier tilt. To balance the effect, the shift was accompanied by an increase in the number of stocks from 60 to as many as 75.
Clearly, the fund shies away from taking big sector or even stock specific bets. So don't expect trailblazing returns from such a portfolio. But then one does not look for such returns in a balance fund.
Our grouse is that even in bearish phases, the fund's track record is not consistent. The instances of the fund losing much less than the category average have been offset by times when it fell much harder than the average. In the recent lean quarters of June 2006 and March 2007, the fund lost as much as the average player. So investors cannot even count on the fund to limit downside risk.
Having listed the weak points, what you can expect from this fund is stability and consistency of returns. The fund will not knock the lights out, but its performance will be in line with the category average.
All in all, the fund may not be the first choice but it is definitely worth a second look.
# 5: DSPML Equity Fund -- Multi-faceted
Equity: Diversified
Information: dspmlmutualfund.com
NAV: Rs 52.31 (28/09)
Entry Load: 2.25 per cent for investment less than RS 5 crore
Exit Load: 0.5 per cent for redemption within 179 days
Expense Ratio: 2.20 per cent
Launch: Apr '97
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX Nifty
Portfolio Manager: Apoorva Shah
This fund has been putting its best foot forward lately.
From a large-cap focus, it shifted to stocks of smaller companies in 2005 to coincide with the mid-cap rally. Now it displays the characteristics of a true multi-cap fund. In the recent past, it has also developed the ability of holding up well in the face of the bear.
One thing that sets the fund apart is its high Sharpe ratio, which is suggestive of a favourable risk-reward ratio. The sixth highest in the category, it indicates that for the amount of risk taken, the fund is able to deliver much higher returns than the average diversified equity fund.
The current year-to-date return of 38.20 per cent is ahead of the category average of 33.40 per cent. Neither has it been a slouch over the long term. In the last five years, it has under-performed the category in only three quarters.
The fund believes in a high degree of diversification. The number of stocks in the portfolio hovers around 70, with the top holding rarely accounting for more than 5.50 per cent. Half of its holdings account for less than one per cent of the portfolio.
It is difficult not to like this fund. With no market-capitalisation or sector bias, this diversified equity offering goes about generating returns in a very consistent fashion.
Its versatility and consistency makes it a suitable core holding for conservative as well as aggressive investors. Little wonders that its asset size has growth to cross RS 1,000 crore.
Interestingly, three of these five belong to HDFC Mutual Fund. They are HDFC Equity, HDFC Prudence and HDFC Growth at number 8,9 and 10 respectively.
DSPML's T.I.G.E.R. comes at number 6 followed by Franklin India Prima Plus at number 7.
Individual needs may vary so view them in conjunction with your overall portfolio and risk profile.
# 6: DSPML T.I.G.E.R. Reg -- Capital maker
Equity: Diversified
Information: www.dspmlmutualfund.com
NAV: Rs 45.857 (28/09)
Entry Load: 2.25 per cent for investment less than RS 5 crore
Exit Load: 0.5 per cent for redemption within 179 days
Expense Ratio: 2.01 per cent
Launch: May '04
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: BSE 100
Portfolio Manager: Soumendra Lahiri
The name might appeal to aggressive investors, when in actuality the conservative ones will feel right at home here. The broad investment mandate, large-cap tilt and intense diversification should alleviate all their fears. An acronym for The Infrastructure Growth and Economic Reforms, the fund focuses on sectors that are likely to prosper from growth related to economic reforms and infrastructure development.
With this as a starting point, the fund manager follows a top-down approach (for sector selection) before resorting to bottom-up stock picking. Unlike other infrastructure offerings, its broader mandate has enabled it to tap into sectors that core infrastructure funds do not -- healthcare, FMCG, textiles, consumer non-durables.
A high degree of diversification, typical of equity funds in the DSPML family, is evident.
At 72, the number of stocks in its portfolio is far more than any other fund focused on infrastructure/core sectors. In fact it is probably too high for a fund with a relatively focused investment objective.
Nevertheless, that has not diluted the return generating capabilities of the fun. It remains among the top quartile across the six-month, one year and three-year horizon.
Owing to its superb run, assets have grown by 130 per cent over the last one year to Rs 2,600 crore, making it the 12th largest diversified equity fund.
Stocks like Reliance Industries, Larsen & Toubro and BHEL have been long-term favourites. While there is a reasonable amount of continuity in its top holdings, considerable churning takes place among the rest.
Great returns on a predominantly large-cap, growth-oriented, infrastructure-led portfolio is what T.I.G.E.R is all about.
#7: Franklin India Prima Plus -- Quality control
Equity: Diversified
Information: www.franklintempletonindia.com
NAV: Rs 177.2704 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 cr
Exit Load: 1 per cent for inv.
< 0.50 months, Within redd. crs>Expenses Ratio: 2.15 per cent
Launch: Sep '94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX 500
Portfolio Manager: Sukumar Rajah, Anand Radhakrishnan
Its mild-mannered approach makes it a suitable holding for investors who like its smooth ride.
Its dominant strength lies in a high-quality portfolio. For example, the fund has largely stayed away from sky-rocketing real estate plays.
Many would call it a missed opportunity, but that is where the fund adds value -- it does not buy into fads easily. Maintaining a strong focus on fundamentals is the fund's top priority.
It invests in a portfolio of around 50 stocks and the top holdings are almost always well-known blue chip stocks. Right from January 2000, the fund has held an average 70 per cent of its portfolio in large caps.
This has not been the case all along though. Launched around the peak of the IPO boom in September 1994, it started off as a stock collector and had nearly 200 stocks in its kitty by March 1996. The relentless cleaning took years before it could pare it down to 40 stocks (January 2001).
Thanks to big bets in technology, the fund trampled its benchmark and peers in 1998 and 1999. But it could not sidestep this landmine. When the tech bubble burst in 2000, it fell harder at (-) 31.89 (category average: (-) 24.27 per cent).
The fund's middling performance after that has been easier to swallow. It can now be branded as a well-diversified, large-cap fund with low volatility ad decent returns.
Because of this, the fund may never deliver eye-popping returns. But at the same time, it will never make you regret your decision of investment in it.
# 8: HDFC Equity -- Top gun
Equity: Diversified
Information: www.hdfcfund.com
NAV: Rs 182.838 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 crore
Exit Load: Nil
Expense Ratio: 1.83 per cent
Launch: Dec '94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX 500
Portfolio Manager: Prashant Jain
This perennial winner has a massive fan following. And rightly so!
Like a magician repeating a trick, HDFC Equity has beaten the category average every single calendar year since 1997. Its ability to identify opportunities at the right time is the key factor contributing to its success.
For example, when the Supreme Court halted PSU disinvestments in September 2003, the fund sold its entire energy holding and built a fresh position in March 2004, when PSU stocks started rallying.
Though the fund maintains a large-cap bias, it does not hesitate to invest substantially in stocks of smaller companies, as and when there are opportunities to exploit. Currently, large-caps account for 51 per cent of the assets while the mid- and small-cap allocations stand at 42 and 6 per cent respectively.
The fund manager has always boldly ridden his convictions. He refrains from taking cash calls and prefers to remain fully invested at all times.
Historically, his portfolio has been a focused 25-30 stocks. But the complexion of the fund seems to be changing on this front. The number of stocks has increased to over 45. And, the concentration in the top five holdings has been moderated from 35-40 per cent about a year ago, to just around 25 per cent now.
This is probably not reflective of his stance but rather an adjustment to the size. Investors have flocked to this fund in droves making it the largest diversified equity offering of Rs 5,000 crore. And this very factory may be detrimental to the strategy of the fund. The fund's ability to identify opportunities and take meaningful exposure in them will be neutralised by its increasing size.
The fund has displayed ample spunk till date, but it remains to be seen how it fares from here on.
# 9: HDFC Prudence -- Fine balance
Hybrid: Equity-oriented
Information: www.hdfcfund.com
NAV: Rs 136.239 (28/09)
Entry Load: 2.25 per cent for investment less than RS 5 crore
Exit Load: 1 per cent for redd. 1 year and investment Rs 5 crore
Expense ratio: 1.89 per cent
Launch '94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: Crisil Balanced Fund Index
Portfolio Manager: Prashant Jain
This fund treats its investors well.
Be it in protecting the downside or generating great returns, it has delivered magnificently.
During the lean years of 2000-2001, the fund lost less than the average balanced fund. In the recent past as well, the fund has done a commendable job of protecting the downside.
During the quarters of June 2006 and March 2007, when the average category loss stood at (-) 7.97 per cent and (-) 3.23 per cent respectively, HDFC Prudence managed to return a loss of (-) 6.58 per cent and (-) 3.18 per cent during the respective quarters. Furthermore, the fund has been amongst the most efficient in pulling out of each such slump and ensuring that the momentum is not lost.
Being a chart topper was a habit for this fund. Till last year, at least. While that in itself is not a disturbing fact, it tends to nag when compared with this year's performance, which is short of the category average.
We can't find a fault with its stock or sector moves. But where we did find significant change was in its diversification. Owing to a rising corpus (increase of 100 per cent since January 2006) combined with a mid-cap orientation, the count of stocks has increased form 30-35 (early 2006), to as many as 50 scrips. This has been accompanied by a steady decline in the concentration of holdings.
While this will help the fund retain its low risk grade, it looks like returns have been compromised. But going by the fund's long term track record, we prefer giving the fund manager the benefit of the doubt. We stick to our verdict that this is among the best choices around.
# 10: HDFC Growth -- Potential energy
Equity: Diversified
Information: www.hdfcfund.com
NAV: Rs 63.818 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 crore
Exit Load: 1 per cent for redeemed 1 year and investment < Rs 5 crore
Expense Ratio: 2.32 per cent
Launch: Aug '00
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: BSE Sensex
Portfolio Manager: Srinivas Rao Ravuri
The fund's revved up stance should appeal to its investors who are in search of more pickup from this offering.
After a fairly uneventful 2004 and 2005, HDFC Growth beat the category average by 10 percent age point last year. Savvy sector selection has been a testament to the fund manager's skills. While its peers were neutral towards the health-care sector, the fund's allocation increased from 4.44 per cent in January 2006 to 11.33 by the end of the year on the back of concentrated bets in Sun Pharmaceuticals and Divi's Laboratories.
Similarly, the fund defied popular trend and pruned its allocation to financial services while increasing it to the automobile sector. Typical to the fund's style, the increased exposure to particular stocks or sectors is done in a systematically and phased manner by building position slowly.
With a comfortable diversification across 35 stocks, buy-and-hold seems to be the preferred strategy with stocks like BHEL deeply entrenched in the portfolio for more than 73 months. But aggression's evident in its significant exposure to mid- and small-cap stocks.
In fact, for a period of 12 months between March 2004-05, the fund's focus shifted to mid cap stocks.
But don't get carried away by the current performance.
By and large, it has been a middle-of-the-road performer with periodic spurts of brilliance. What's impressive is that in such a frenzied market, it has managed to deliver great results and emerged out of the shadows.
This can probably be credited to the new fund manager who has been around for a year. Going by the recent performance, HDFC Growth may finally have earned a place in the sun. This fund is worth a second look.
And then, there is the volatility witnessed in the Indian stock markets, especially in these times when India's benchmark 30-stock index, the BSE Sensex is nearing 20,000 points, a level never ever seen before.
Does the current situation mean the markets are risky and investors should stop putting their money in search of reasonable returns? Of course not.
Here's an analysis of 25 mutual funds by Value Research that will create long-term value for you. In a five-part series that begins today, we present the first five mutual funds with the rest to follow on subsequent days.
Individual needs may vary so view them in conjunction with your overall portfolio and risk profile.
# 1: Birla Equity Plan -- Swift moves
Equity: Tax Planning
Information
Website: www.birlasunlife.com
NAV: Rs 72.65 (28/09)
Entry Load: 2.25 per cent for investment less than RS 5 crore
Exit Load: Nil
Expense Ratio: 2.49 per cent
Launch: Feb '99
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: BSE Sensex
Portfolio Manager: Sanjay Chawla
You won't catch the fund manager napping here.
Aggressive portfolio churning, swift moves and strategically timed entry and exit into opportunistic sectors are what this fund is all about. The fund has displayed an uncanny ability to sense an opportunity at the right time. It did so during the third quarter of 2006 by timing its entry in banking stocks to perfection.
Moreover, the fund manager does not mind going against the herd.
For instance, the fund has maintained its position in the automobile sector at a high of over 13 per cent through this bear phase while the average category exposure to the sector has hovered around 7 per cent.
Despite frequent fund manager changes (the current one is the fifth), the fund has not skipped a beat and continues to outshine the pack. Barring one year, the fund has consistently beaten the category returns over the past five years.
But the latest fund manager change has brought about a visible alteration in the portfolio. From the earlier 35 stocks, scattered evenly across market cap segments, the portfolio has expanded to 44. This may dilute the risk, but also the returns. In a more concentrated portfolio, each stock has a significant impact on the fund's returns.
Perhaps, these are early signs of a shift in strategy towards a more conservative bend. But aggressive investors should not jump ship just yet. Going by the past performance, excellent stock picks and the track record of the fund house, it would be wise to adopt a wait-and-watch approach.
# 2: Birla Mid Cap -- Style statement
Equity: Diversified
Website: birlasunlife.com
NAV: Rs 86.77 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 crore
Exit Load: 0.5 per cent for redemption within 180 days and investment less than Rs 5 crore
Expense Ratio: 2.37 per cent
Launch: Oct '02
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: CNX Midcap
Portfolio Manager: A Balasubramanian, Sanjay Chawla
It's tough to nail down this one's style.
Consider this. The fund invests aggressively in small companies, but ensures that a larger part of its portfolio is invested in relatively bigger mid-caps. At Rs 4,051 crore, the weighted average market capitalisation of its portfolio is pretty high.
The fund manager does churn the portfolio considerably and frequently tries out new stocks. Yet, stocks that are held for a period of 30-odd months at a stretch do make an appearance.
He brazenly sticks to his convictions and goes against the herd, as suggested by some of his sector bets. Yet he walks down the path of high diversification. His portfolio now has 65 stocks, up from the 40-45 range. None of the stocks account for more than 3 per cent of the assets.
But going by the fine numbers he has been putting in, there's reason to think he knows what he is doing. Over the last three years, Birla Mid Cap has delivered an annualized return of 53 per cent (as on October 11, 2007) to command a place in the top quartile of the category. It has never fallen below a four-star rating in its 24-month rating history.
Being quite small vis-a-vis other mid-cap funds, it is nimble offering with just Rs 493 crore. The increase in corpus over the past 12 months (from Rs 159 crore) is probably the reason for the portfolio diversification.
In a nutshell, the fund does not display characteristics of being highly aggressive, especially given the amount of diversification and the kind of mid-caps it invest in. This is probably as safe as you can get with a mid-cap fund.
# 3: Birla Sun Life Equity -- Steady evolution
Equity: Diversified
Website: www.birlasunlife.com
NAV: Rs 240.27 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 crore
Exit Load: 0.5 per cent for redemption within 180 days and investment less than Rs 5 crore
Expense Ratio: 2.27 per cent
Launch: Aug '98
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: BSE 200
Portfolio Manager: Mahesh Patil
This erstwhile Alliance fund seems to be regaining its days of glory but without the brashness of its youth. After a dazzling performance of 280 per cent (1999) and a miserable two years (2001, 2002), it now seems to be back on track.
Like a chameleon, this one constantly changed its colours. In its initial years, it was a dangerously focused offering with extreme concentration in few technology stocks, followed by a stream of small holdings.
It paid off handsomely before falling in the doldrums. What followed (since 2003) wee smaller portfolios of 30-35 stocks with the top five holdings consuming 35 per cent of assets. This brought in the much-needed sectoral diversity.
A good move at this time was the identification of the mid-cap rally early enough.
In September 2005, Birla Sun Life acquired the fund. The natural consequence was a significant toning down of the aggression. The number of stocks gradually rose to around 50 and the top five holdings now add up to just around 20 per cent of the assets, which remain evenly spread across large-and mid-caps. What's more, the fund manager does not hesitate to shift a considerable part of assets to cash at the first sign of trouble.
Despite this ongoing transformation, the fund has evolved to be a steady, well-diversified, multi-cap offering that has consistently beaten the category average. With erratic performances and concentrated portfolios being a trend of the past, this fund is suitable to be among the core holdings of your portfolio.
# 4: DSPML Balanced -- Bankable choice
Hybrid: Equity-oriented
Website: www.dspmlmutualfund.com/
NAV: Rs 48.128 (28/09)
Entry Load: 1 per cent
Exit Load: 1.25 per cent for redemption within 365 days
Expense Ratio: 1.98 per cent
Launch: May '99
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: Crisil Balanced Fund Index
Portfolio Manager: Apoorva Shah
Though it has delivered above average performances, and even managed top quartile returns in a few years, DSPML Balanced does not turn heads.
Its tactical asset allocation has done little to deliver impressively. Over the past 21 months, the equity exposure has fluctuated in a wide range of 9 percentage points. According to the September 2007 portfolio, the fund has parked 72 per cent of its assets in equity.
The tilt towards mid- and small-cap stocks from December 2006 is here to stay. This automatically gives the fund a riskier tilt. To balance the effect, the shift was accompanied by an increase in the number of stocks from 60 to as many as 75.
Clearly, the fund shies away from taking big sector or even stock specific bets. So don't expect trailblazing returns from such a portfolio. But then one does not look for such returns in a balance fund.
Our grouse is that even in bearish phases, the fund's track record is not consistent. The instances of the fund losing much less than the category average have been offset by times when it fell much harder than the average. In the recent lean quarters of June 2006 and March 2007, the fund lost as much as the average player. So investors cannot even count on the fund to limit downside risk.
Having listed the weak points, what you can expect from this fund is stability and consistency of returns. The fund will not knock the lights out, but its performance will be in line with the category average.
All in all, the fund may not be the first choice but it is definitely worth a second look.
# 5: DSPML Equity Fund -- Multi-faceted
Equity: Diversified
Information: dspmlmutualfund.com
NAV: Rs 52.31 (28/09)
Entry Load: 2.25 per cent for investment less than RS 5 crore
Exit Load: 0.5 per cent for redemption within 179 days
Expense Ratio: 2.20 per cent
Launch: Apr '97
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX Nifty
Portfolio Manager: Apoorva Shah
This fund has been putting its best foot forward lately.
From a large-cap focus, it shifted to stocks of smaller companies in 2005 to coincide with the mid-cap rally. Now it displays the characteristics of a true multi-cap fund. In the recent past, it has also developed the ability of holding up well in the face of the bear.
One thing that sets the fund apart is its high Sharpe ratio, which is suggestive of a favourable risk-reward ratio. The sixth highest in the category, it indicates that for the amount of risk taken, the fund is able to deliver much higher returns than the average diversified equity fund.
The current year-to-date return of 38.20 per cent is ahead of the category average of 33.40 per cent. Neither has it been a slouch over the long term. In the last five years, it has under-performed the category in only three quarters.
The fund believes in a high degree of diversification. The number of stocks in the portfolio hovers around 70, with the top holding rarely accounting for more than 5.50 per cent. Half of its holdings account for less than one per cent of the portfolio.
It is difficult not to like this fund. With no market-capitalisation or sector bias, this diversified equity offering goes about generating returns in a very consistent fashion.
Its versatility and consistency makes it a suitable core holding for conservative as well as aggressive investors. Little wonders that its asset size has growth to cross RS 1,000 crore.
Interestingly, three of these five belong to HDFC Mutual Fund. They are HDFC Equity, HDFC Prudence and HDFC Growth at number 8,9 and 10 respectively.
DSPML's T.I.G.E.R. comes at number 6 followed by Franklin India Prima Plus at number 7.
Individual needs may vary so view them in conjunction with your overall portfolio and risk profile.
# 6: DSPML T.I.G.E.R. Reg -- Capital maker
Equity: Diversified
Information: www.dspmlmutualfund.com
NAV: Rs 45.857 (28/09)
Entry Load: 2.25 per cent for investment less than RS 5 crore
Exit Load: 0.5 per cent for redemption within 179 days
Expense Ratio: 2.01 per cent
Launch: May '04
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: BSE 100
Portfolio Manager: Soumendra Lahiri
The name might appeal to aggressive investors, when in actuality the conservative ones will feel right at home here. The broad investment mandate, large-cap tilt and intense diversification should alleviate all their fears. An acronym for The Infrastructure Growth and Economic Reforms, the fund focuses on sectors that are likely to prosper from growth related to economic reforms and infrastructure development.
With this as a starting point, the fund manager follows a top-down approach (for sector selection) before resorting to bottom-up stock picking. Unlike other infrastructure offerings, its broader mandate has enabled it to tap into sectors that core infrastructure funds do not -- healthcare, FMCG, textiles, consumer non-durables.
A high degree of diversification, typical of equity funds in the DSPML family, is evident.
At 72, the number of stocks in its portfolio is far more than any other fund focused on infrastructure/core sectors. In fact it is probably too high for a fund with a relatively focused investment objective.
Nevertheless, that has not diluted the return generating capabilities of the fun. It remains among the top quartile across the six-month, one year and three-year horizon.
Owing to its superb run, assets have grown by 130 per cent over the last one year to Rs 2,600 crore, making it the 12th largest diversified equity fund.
Stocks like Reliance Industries, Larsen & Toubro and BHEL have been long-term favourites. While there is a reasonable amount of continuity in its top holdings, considerable churning takes place among the rest.
Great returns on a predominantly large-cap, growth-oriented, infrastructure-led portfolio is what T.I.G.E.R is all about.
#7: Franklin India Prima Plus -- Quality control
Equity: Diversified
Information: www.franklintempletonindia.com
NAV: Rs 177.2704 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 cr
Exit Load: 1 per cent for inv.
< 0.50 months, Within redd. crs>Expenses Ratio: 2.15 per cent
Launch: Sep '94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX 500
Portfolio Manager: Sukumar Rajah, Anand Radhakrishnan
Its mild-mannered approach makes it a suitable holding for investors who like its smooth ride.
Its dominant strength lies in a high-quality portfolio. For example, the fund has largely stayed away from sky-rocketing real estate plays.
Many would call it a missed opportunity, but that is where the fund adds value -- it does not buy into fads easily. Maintaining a strong focus on fundamentals is the fund's top priority.
It invests in a portfolio of around 50 stocks and the top holdings are almost always well-known blue chip stocks. Right from January 2000, the fund has held an average 70 per cent of its portfolio in large caps.
This has not been the case all along though. Launched around the peak of the IPO boom in September 1994, it started off as a stock collector and had nearly 200 stocks in its kitty by March 1996. The relentless cleaning took years before it could pare it down to 40 stocks (January 2001).
Thanks to big bets in technology, the fund trampled its benchmark and peers in 1998 and 1999. But it could not sidestep this landmine. When the tech bubble burst in 2000, it fell harder at (-) 31.89 (category average: (-) 24.27 per cent).
The fund's middling performance after that has been easier to swallow. It can now be branded as a well-diversified, large-cap fund with low volatility ad decent returns.
Because of this, the fund may never deliver eye-popping returns. But at the same time, it will never make you regret your decision of investment in it.
# 8: HDFC Equity -- Top gun
Equity: Diversified
Information: www.hdfcfund.com
NAV: Rs 182.838 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 crore
Exit Load: Nil
Expense Ratio: 1.83 per cent
Launch: Dec '94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX 500
Portfolio Manager: Prashant Jain
This perennial winner has a massive fan following. And rightly so!
Like a magician repeating a trick, HDFC Equity has beaten the category average every single calendar year since 1997. Its ability to identify opportunities at the right time is the key factor contributing to its success.
For example, when the Supreme Court halted PSU disinvestments in September 2003, the fund sold its entire energy holding and built a fresh position in March 2004, when PSU stocks started rallying.
Though the fund maintains a large-cap bias, it does not hesitate to invest substantially in stocks of smaller companies, as and when there are opportunities to exploit. Currently, large-caps account for 51 per cent of the assets while the mid- and small-cap allocations stand at 42 and 6 per cent respectively.
The fund manager has always boldly ridden his convictions. He refrains from taking cash calls and prefers to remain fully invested at all times.
Historically, his portfolio has been a focused 25-30 stocks. But the complexion of the fund seems to be changing on this front. The number of stocks has increased to over 45. And, the concentration in the top five holdings has been moderated from 35-40 per cent about a year ago, to just around 25 per cent now.
This is probably not reflective of his stance but rather an adjustment to the size. Investors have flocked to this fund in droves making it the largest diversified equity offering of Rs 5,000 crore. And this very factory may be detrimental to the strategy of the fund. The fund's ability to identify opportunities and take meaningful exposure in them will be neutralised by its increasing size.
The fund has displayed ample spunk till date, but it remains to be seen how it fares from here on.
# 9: HDFC Prudence -- Fine balance
Hybrid: Equity-oriented
Information: www.hdfcfund.com
NAV: Rs 136.239 (28/09)
Entry Load: 2.25 per cent for investment less than RS 5 crore
Exit Load: 1 per cent for redd. 1 year and investment Rs 5 crore
Expense ratio: 1.89 per cent
Launch '94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: Crisil Balanced Fund Index
Portfolio Manager: Prashant Jain
This fund treats its investors well.
Be it in protecting the downside or generating great returns, it has delivered magnificently.
During the lean years of 2000-2001, the fund lost less than the average balanced fund. In the recent past as well, the fund has done a commendable job of protecting the downside.
During the quarters of June 2006 and March 2007, when the average category loss stood at (-) 7.97 per cent and (-) 3.23 per cent respectively, HDFC Prudence managed to return a loss of (-) 6.58 per cent and (-) 3.18 per cent during the respective quarters. Furthermore, the fund has been amongst the most efficient in pulling out of each such slump and ensuring that the momentum is not lost.
Being a chart topper was a habit for this fund. Till last year, at least. While that in itself is not a disturbing fact, it tends to nag when compared with this year's performance, which is short of the category average.
We can't find a fault with its stock or sector moves. But where we did find significant change was in its diversification. Owing to a rising corpus (increase of 100 per cent since January 2006) combined with a mid-cap orientation, the count of stocks has increased form 30-35 (early 2006), to as many as 50 scrips. This has been accompanied by a steady decline in the concentration of holdings.
While this will help the fund retain its low risk grade, it looks like returns have been compromised. But going by the fund's long term track record, we prefer giving the fund manager the benefit of the doubt. We stick to our verdict that this is among the best choices around.
# 10: HDFC Growth -- Potential energy
Equity: Diversified
Information: www.hdfcfund.com
NAV: Rs 63.818 (28/09)
Entry Load: 2.25 per cent for investment less than Rs 5 crore
Exit Load: 1 per cent for redeemed 1 year and investment < Rs 5 crore
Expense Ratio: 2.32 per cent
Launch: Aug '00
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: BSE Sensex
Portfolio Manager: Srinivas Rao Ravuri
The fund's revved up stance should appeal to its investors who are in search of more pickup from this offering.
After a fairly uneventful 2004 and 2005, HDFC Growth beat the category average by 10 percent age point last year. Savvy sector selection has been a testament to the fund manager's skills. While its peers were neutral towards the health-care sector, the fund's allocation increased from 4.44 per cent in January 2006 to 11.33 by the end of the year on the back of concentrated bets in Sun Pharmaceuticals and Divi's Laboratories.
Similarly, the fund defied popular trend and pruned its allocation to financial services while increasing it to the automobile sector. Typical to the fund's style, the increased exposure to particular stocks or sectors is done in a systematically and phased manner by building position slowly.
With a comfortable diversification across 35 stocks, buy-and-hold seems to be the preferred strategy with stocks like BHEL deeply entrenched in the portfolio for more than 73 months. But aggression's evident in its significant exposure to mid- and small-cap stocks.
In fact, for a period of 12 months between March 2004-05, the fund's focus shifted to mid cap stocks.
But don't get carried away by the current performance.
By and large, it has been a middle-of-the-road performer with periodic spurts of brilliance. What's impressive is that in such a frenzied market, it has managed to deliver great results and emerged out of the shadows.
This can probably be credited to the new fund manager who has been around for a year. Going by the recent performance, HDFC Growth may finally have earned a place in the sun. This fund is worth a second look.
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