The Sundaram Select Midcap fund has changed its strategies in the past year which will give the fund more stable earnings. But the changes have also resulted in a dip in the fund's performance
The fund is known for its astute stock picking. The earlier fund manager, Anoop Bhaskar, dabbled in construction companies (Gammon India, IVRCL Infrastructures, Hindustan Construction) when most investors would not touch them with a bargepole. Unitech entered the portfolio later (2005). That was also the year he bought Emami, which delivered impressively. Kohinoor Foods, Lakshmi Machine Works and Thermax were some other good picks.
Besides good stock picking, the timing could not have been better. Launched in July 2002, mid-caps started gaining momentum in 2003. The fund ended that year as the third-best equity fund with returns of 157.73 per cent. As the mid-caps slowed, this fund dipped slightly in performance only to shoot up to the second-best spot in 2006 with 60.77 per cent returns.
Naturally, huge investor interest followed taking the assets from Rs 500 crore (January 2006) to Rs 2,203 crore (May 2007). Recently, there has been a slight dip in assets to Rs 2,116.66 (September 2007). There were two much-talked about aspects of this fund, both of which are changing. It was noted for its extremely diversified portfolio. From around 60-odd stocks late 2004, it swelled to a 112-stock pack by April 2007. But the number of stocks has been diminishing and it touched 82 in September this year.
And, it often had the highest cash holdings amongst its peers; there were times when it touched 32 per cent of its portfolio. But in May 2007, it reduced it to 5 per cent and since then it has hovered around 3.26 per cent. The current move towards lesser stocks and a lowering of the cash holding should spell good news because it speaks of a more concentrated portfolio whose returns will not be diluted. But, the fund is facing some heat on the performance front.
This year, its quarterly returns have not beaten the category average and its year-to-date, one-month, three-month and one-year returns are lower too. Despite the current statistics, this one is a good bet in the mid-cap space.
(by value research)
Mutual Fund News update from Nishit Doshi (9824021680) a leading MF Advisor based in Ahmedabad. Gujarat.
Friday, January 4, 2008
Spread Your Investments
I have recently read your magazine and am very impressed with the information and analysis. I would really like some guidance. Please advise me on whether or not the allocations are appropriate. You could also suggest some changes which may be useful. I am 74 years old and have other sources of income to meet my regular expenses.
-Mitra Sen
Congratulations. You do own a wonderful basket of funds. In fact, it is rare that we come across a portfolio which has such quality fund picks.
Within two years of investment, your portfolio return stands at a remarkable 52.4 per cent (as on November 2, 2007). This should be an example to all investors as to how a good fund selection can yield high returns.
Going by your excellent fund picks and the great performance track record, your portfolio does not need any major changes. But we do have some suggestions on how you can fine tune it.
Balancing Act
We believe that every portfolio should have some sort of a balance between equity and debt to reduce the downside risk. No portfolio should be solely in either asset. However, the actual allocation between the two will depend on your age, income and appetite for risk. This is where you need to make a change. At over 90 per cent, your current portfolio is very heavily tilted towards equity.
-Mitra Sen
| Exisiting Portfolio | |||
| Funds | Allocation (%) | ||
| Franklin India Prima Plus-G | 12.88 | ||
| HDFC Equity-G | 33.40 | ||
| HDFC Prudence-G | 10.32 | ||
| HDFC Top 200-G | 17.50 | ||
| ICICI Pru Dynamic-G | 6.64 | ||
| ICICI Pru Emerging STAR-G | 7.88 | ||
| SBI Magnum Global-G | 11.39 | ||
| Total | 100.00 | ||
Congratulations. You do own a wonderful basket of funds. In fact, it is rare that we come across a portfolio which has such quality fund picks.
Within two years of investment, your portfolio return stands at a remarkable 52.4 per cent (as on November 2, 2007). This should be an example to all investors as to how a good fund selection can yield high returns.
Going by your excellent fund picks and the great performance track record, your portfolio does not need any major changes. But we do have some suggestions on how you can fine tune it.
Balancing Act
We believe that every portfolio should have some sort of a balance between equity and debt to reduce the downside risk. No portfolio should be solely in either asset. However, the actual allocation between the two will depend on your age, income and appetite for risk. This is where you need to make a change. At over 90 per cent, your current portfolio is very heavily tilted towards equity.
Further, 40 per cent of your overall holdings consist of mid-cap stocks and 12.67 per cent, small caps. So your portfolio is quite risky and unbalanced.
The first thing you need to do is to re-balance your portfolio between equity and debt (refer to the cover story to understand this point in greater detail). We recommend that you exit from ICICI Prudential Emerging STAR as it is a relatively new fund. Moreover, its performance had been quite volatile due to its high small- and mid-cap orientation.
Instead, you can shift the corpus from ICICI Prudential Emerging STAR and invest it in HDFC Prudence, which is one of the top-performing balanced funds. Increasing the amount in HDFC Prudence will automatically increase your debt component and make your portfolio look healthier and will reduce the downside risk considerably.
We believe you need to increase your debt component further. So we suggest that you channelise a portion of your portfolio to Birla Sun Life MIP and ICICI Prudential MIP. MIPs are primarily debt- oriented funds with a small equity allocation (between 10-20 percent). While choosing an MIP, don't just look at the performance, but do check the asset allocation patterns. (Read Category Watch on MIPs)
Diversifying
All funds handled by one asset management company (AMC) have a common research team and a chief investment officer (CIO). But to have an element of diversification in a portfolio, it is wise not to have a huge exposure to just one fund house. An AMC may also have some great funds at a particular point in time which could fall out of favour later. So not only does it make sense to diversify amongst funds, but even amongst fund houses. Not only do you benefit from the different research philosophies and styles of investment but it also lowers the risk.
Currently, you seem to be very keen on HDFC funds. Around 60 per cent of your current portfolio is invested only in HDFC funds. And 33.4 per cent of the portfolio is in HDFC Equity. So your portfolio is very largely dependent on the schemes of HDFC Mutual Fund and on the performance of HDFC Equity.
We recommend that you sell some investments in a phased manner and explore more investment opportunities available. While shifting the corpus, make note of exit loads and the capital gains tax to be paid. Currently the tax on equity funds is 10 per cent if you exit within one year of investment and it is nil if you sell after one year of investment. In your case though, as all of your HDFC funds have exceeded one year of investment, you would not be liable to pay any capital gains tax or exit loads. We suggest that you shift some amount to Reliance Vision and Birla Sunlife Frontline Equity to give your portfolio a more diversified tilt.
Timing the Market
Going by the fact that you are not a regular investor, luck has certainly been on your side. A huge chunk of your investment, 46 per cent to be precise, has been invested within a period of 33 days. This strategy could have backfired badly had the markets tanked post your investment.
Fortunately for you, the markets have been on a roll since then. The Sensex has zoomed by over 41 per cent from the date of your investment (as on November 2, 2007). But in future, please avoid taking such risks and spread your investments over months by adopting a systematic approach.
Take a systematic investment plan (SIP) whereby you invest fixed amounts every single month. So whichever direction the market takes, you will be consistently investing.
End of the day, there is no substitute to being a disciplined and consistent investor. Suggested Portfolio Funds % Allocation Birla Sun Life Frontline Equity-G 11.00 Birla Sun Life MIP 7.50 Franklin India Prima Plus-G 12.88 HDFC Equity-G 18.00 HDFC Prudence-G 15.10 ICICI Pru Dynamic-G 6.64 ICICI Pru MIP-G 7.50 Reliance Vision-G 10.00 SBI Magnum Global-G 11.39 Total 100.00 
Best Tax Saving Funds
Q. I want to invest for both good returns & insurance cover. Suggest the best options.
Pavan
A. For life insurance, take a term plan from any insurer. For good returns, invest systematically in some well performing equity diversified funds like Franklin India Prima Plus, HDFC Equity or Reliance Vision.
Q. Which would be the best funds for saving taxes under section 80C?
A. For saving taxes choose from well rated ELSS funds. You can choose from HDFC Tax saver, Magnum Tax gain, Birla Sun Life Tax Relief '96, Sundaram BNP Paribas Taxsaver.
Q. Can I invest my money in PMS schemes?
Vandana Hake
A. PMS services are ideal for HNI (High Networth Individuals) who do not have time to manage their money. However PMS services are not properly regulated in India. The system is also not very transparent. One should carefully investigate the terms and conditions before opting for such services.
Q. I am an insurance agent. I usually tell people that I will double your money within 4 years. Is it true?
A. No. There is no guaranteed and quick way of doubling money. Investors should be disciplined and invest systematically.
Q. Please give information about future performance of LIC PROFIT PLUS Growth.
A. LIC Profit Plus is a ULIP. Avoid investing in ULIPs as they have high charges which hamper the return on investment.
Q. Suggest better option - to purchase fund immediately before or after dividend payout.
O P Srivastava
A. Mutual funds dividends are nothing but liquidation of your own holdings. When dividend is declared, NAV falls by the same amount. Investing just before a dividend is declared, you will get back a portion of your invested amount. For growth of corpus, choose dividend reinvestment.
Q. I regularly watch FUND KA FUNDA. Please explain Large Cap, Mid Cap, Small Cap.
M.A. HUSSAIN
A. Companies are classified as large, mid and small cap based on the market capitalization that changes everyday. As per November 30, 2007 there were 72 large cap companies (market cap of over Rs. 15000 Crore). There were 212 Mid Cap Companies ( Market Cap less than Rs. 15000 Crore) and 2702 small cap companies ( market cap less than Rs. 2500 Crore).
Q. How is SBI Arbitrage Opportunities Fund?
A. SBI Arbitrage Opportunities was launched last year and has performed well in its category since then. It would be a good choice in the arbitrage category.
Q. Which are the best equity diversified mutual funds to invest?
A. You can choose from top rated equity funds like Reliance Vision Franklin Prima Plus, Birla Sun Life Equity, HDFC Equity.
(by valueresearch)
Pavan
A. For life insurance, take a term plan from any insurer. For good returns, invest systematically in some well performing equity diversified funds like Franklin India Prima Plus, HDFC Equity or Reliance Vision.
Q. Which would be the best funds for saving taxes under section 80C?
A. For saving taxes choose from well rated ELSS funds. You can choose from HDFC Tax saver, Magnum Tax gain, Birla Sun Life Tax Relief '96, Sundaram BNP Paribas Taxsaver.
Q. Can I invest my money in PMS schemes?
Vandana Hake
A. PMS services are ideal for HNI (High Networth Individuals) who do not have time to manage their money. However PMS services are not properly regulated in India. The system is also not very transparent. One should carefully investigate the terms and conditions before opting for such services.
Q. I am an insurance agent. I usually tell people that I will double your money within 4 years. Is it true?
A. No. There is no guaranteed and quick way of doubling money. Investors should be disciplined and invest systematically.
Q. Please give information about future performance of LIC PROFIT PLUS Growth.
A. LIC Profit Plus is a ULIP. Avoid investing in ULIPs as they have high charges which hamper the return on investment.
Q. Suggest better option - to purchase fund immediately before or after dividend payout.
O P Srivastava
A. Mutual funds dividends are nothing but liquidation of your own holdings. When dividend is declared, NAV falls by the same amount. Investing just before a dividend is declared, you will get back a portion of your invested amount. For growth of corpus, choose dividend reinvestment.
Q. I regularly watch FUND KA FUNDA. Please explain Large Cap, Mid Cap, Small Cap.
M.A. HUSSAIN
A. Companies are classified as large, mid and small cap based on the market capitalization that changes everyday. As per November 30, 2007 there were 72 large cap companies (market cap of over Rs. 15000 Crore). There were 212 Mid Cap Companies ( Market Cap less than Rs. 15000 Crore) and 2702 small cap companies ( market cap less than Rs. 2500 Crore).
Q. How is SBI Arbitrage Opportunities Fund?
A. SBI Arbitrage Opportunities was launched last year and has performed well in its category since then. It would be a good choice in the arbitrage category.
Q. Which are the best equity diversified mutual funds to invest?
A. You can choose from top rated equity funds like Reliance Vision Franklin Prima Plus, Birla Sun Life Equity, HDFC Equity.
(by valueresearch)
Tuesday, January 1, 2008
Does the Fund Size Matter ?
Size of a fund definitely has a role to play, but not when it comes to deciding which one to buy or sell. If we look at size in the context of equity funds, smaller funds have the capability of being more agile. This is especially true for mid- and small-cap funds. These funds can exit and enter stocks of a smaller market cap without affecting the price of the stock too much. But, if we look at the performance of large mid-cap offerings such as Reliance Growth and Sundaram BNP Paribas Select Midcap, this theory is disproved.
In the case of index funds, size may be an asset. Any inflow can be easily invested without giving rise to significant tracking error. In the case of a small index fund, the same inflow may look substantial and it may not be easy to allocate it without causing a tracking error.
Where debt funds are concerned, size is critical because it has a direct impact on the expense ratio. Larger funds can distribute fixed expenses over a number of investors and bring down the expense ratio. They can also negotiate better rates with issuers of debt paper.
On a closing note, there will be exceptions to all the above observations. Though theoretically there are specific kinds of funds which are better off either as large or small funds, there is no clear-cut trend to prove that a larger fund will perform better than a smaller fund or vice versa.
(by valueresearch)
In the case of index funds, size may be an asset. Any inflow can be easily invested without giving rise to significant tracking error. In the case of a small index fund, the same inflow may look substantial and it may not be easy to allocate it without causing a tracking error.
Where debt funds are concerned, size is critical because it has a direct impact on the expense ratio. Larger funds can distribute fixed expenses over a number of investors and bring down the expense ratio. They can also negotiate better rates with issuers of debt paper.
On a closing note, there will be exceptions to all the above observations. Though theoretically there are specific kinds of funds which are better off either as large or small funds, there is no clear-cut trend to prove that a larger fund will perform better than a smaller fund or vice versa.
(by valueresearch)
Magnum Multiplier Plus - Risky Proposition
Like wine, it has matured with age. Magnum Multiplier Plus has had superb as well as dismal performances in the past. However, the fund has matured & will interest investors who can take a few risks
Magnum Multiplier Plus was amongst the most criticised in the 2000-2001 meltdown. After delivering an astounding 218.91 per cent in 1999, the fund lost (-) 50.31 per cent in 2000 and followed it up with another disastrous (-) 41.58 per cent loss in 2001. The culprit for this abysmal performance was lack of ample diversification and highly concentrated bets taken in the IT space. But the fund managed to pull out of this trench.
A look at the most recent bearish quarters' ending June 2006 (April-June) and March 2007 (January-March) shows that the fund has learnt to manage the downside better than before, and has lost only as much as the category average. This has been done by reverting to the time tested strategy of diversifying holdings. As a result, the fund has managed to progressively deliver a much better risk- adjusted return compared to the average peer. With assets evenly divided between large and mid caps and a small exposure to small caps, the fund steers clear of a capitalisation bias.
But old habits die hard. It had a rather high 26 per cent allocation to the basic-engineering and another 9.67 per cent in the construction space (as on July 31). Now construction is 17.36 per cent and basic-engineering 16.34 per cent (September 30). Its IT sector exposure went down to 2.05 per cent (July 31) to rise to 8.05 per cent (September 30). The fund will sit well with investors who are willing to take on slightly higher risk than the category average.
(by valueresearch)
Magnum Multiplier Plus was amongst the most criticised in the 2000-2001 meltdown. After delivering an astounding 218.91 per cent in 1999, the fund lost (-) 50.31 per cent in 2000 and followed it up with another disastrous (-) 41.58 per cent loss in 2001. The culprit for this abysmal performance was lack of ample diversification and highly concentrated bets taken in the IT space. But the fund managed to pull out of this trench.
A look at the most recent bearish quarters' ending June 2006 (April-June) and March 2007 (January-March) shows that the fund has learnt to manage the downside better than before, and has lost only as much as the category average. This has been done by reverting to the time tested strategy of diversifying holdings. As a result, the fund has managed to progressively deliver a much better risk- adjusted return compared to the average peer. With assets evenly divided between large and mid caps and a small exposure to small caps, the fund steers clear of a capitalisation bias.
But old habits die hard. It had a rather high 26 per cent allocation to the basic-engineering and another 9.67 per cent in the construction space (as on July 31). Now construction is 17.36 per cent and basic-engineering 16.34 per cent (September 30). Its IT sector exposure went down to 2.05 per cent (July 31) to rise to 8.05 per cent (September 30). The fund will sit well with investors who are willing to take on slightly higher risk than the category average.
(by valueresearch)
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