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The 7 best equity funds

Value Research | August 11, 2005

Diversified equity funds have become increasingly popular in recent times.

ImageIn the last year, 40 new diversified equity funds have been introduced. And, at least 25 funds are set to be launched in the next few months.

Diversified equity funds are the second largest category among all fund categories, with cash funds being at the top. What this means is that from all the money being invested in mutual funds, most of it goes to cash funds with diversified equity funds following.

Cash funds invest in fixed return instruments of very short maturities. Their main aim is to preserve the principal and earn a modest return. So the money you invest will eventually be returned to you with a little something added.

Here are some diversified equity funds to check out.

All the Net Asset Values are as of August 10, 2005 and are for the growth option scheme. To understand growth and dividend schemes in detail, read The best mutual fund scheme for you.

Alliance Basic Industries

Risk: High

NAV: 42.84

Performance

The fund's recent performance is not at all impressive and the year 2005 has been terrible for this fund.

While the performance is discouraging, the fund by its very objective is designed to test your patience. We believe that this fund packs some real punch and should be accommodated as a small proportion of your overall investments.

Notwithstanding the poor show in recent times, the fund has a glorious past. By completely ignoring technology stocks and concentrating on cyclicals, it has found a place at the top of the performance charts.

Our take

If you have already invested substantial amounts in other diversified equity funds, you could invest in this. In other words, don't make it a core holding but an additional holding. This fund is ill suited for chicken-hearted investors.

Franklin India Prima

Risk: High

NAV: 144.68

Performance

Even though the mutual fund industry has been flooded with mid-cap funds, this return powerhouse remains our first choice.

The fund manager is an expert at earning superlative gains from mid-cap stocks.

In the last four calendar years, the fund has managed great performances. In 2001 and 2003, it was the hottest fund around.

Our take

The fund will definitely be more volatile than a large-cap fund. But, if you have a strong desire to earn extraordinary returns with some risk, you should entrust a small portion of the portfolio to this fund.

The risk of investing in mid-caps is that when equity markets tumble, mid-caps fall more rapidly than large-caps. Thus the fund is prone to wide swings as and when the stock market changes direction.

Since mid-caps are risky, you should be mentally strong and ready to stay invested for the long-term.

HDFC Equity

Risk: Moderate

NAV: 83.589

Performance

This is the only diversified equity fund that has outperformed the category average return every year for the last seven years.

If the average returns of all diversified equity funds are taken for a particular period, it is referred to as the category average return during that time.

Our take

HDFC Equity is one of the most versatile funds available to the Indian investor. The fund has the ability to move in and out of sectors. For example, when the Supreme Court halted public sector disinvestment in September 2003, the fund sold its entire oil sector holding which was 9% of total investments.

It bought fresh stocks again in March 2004 when public sector stock prices began to climb upward.

This performance with moderate risk makes it a good fund to invest in.

HDFC Top 200

Risk: Moderate

NAV: 62.695

Performance

The fund's performance dipped in 2000 and picked up in 2001. Since then, the fund performed well to consistently deliver above average returns.

In 2004, it clocked a poor performance.

Otherwise, the fund boasts of a good long-term record and ranks seventh in performance over a three and five year horizon.

Our take

The fund invests in the stocks that comprise the BSE 200 index and stocks that can qualify to be among these. Hence, the stocks are typically large cap, blue-chips that are frequently traded.

If you are looking at an equity fund that invests only in India's largest companies, you will like this fund.

With a quality conscious portfolio and a preference for large-caps, the fund will add value to those who want to step into the equity markets but are still conservative in their risk approach.

Magnum Contra

Risk: Moderate

NAV: 20.7

Performance

Last year, this fund pulled off an exceptional return of 64.49% to emerge as the second hottest diversified equity fund. As on July 7, 2005, this fund raced ahead to deliver a 23.53% since the start of the year.

In recent times, the fund has profited from its large investments in construction. Picks like IVRCL Infrastructures, Kajaria Ceramics, Nagarjuna Construction and Shree Cements have been proved highly rewarding. Select automobiles and metal stocks too have boosted the fund's returns.

The popularity of this fund can also be gauged from the growing number of investors.

It was managing Rs 22 crore last year and now manages Rs 349 crore.

Our take

While most other funds are focused on large-cap, blue chips or mid-cap stocks, this one is different. It picks up stocks that have the potential to appreciate but are not yet noticed by other investors.

If you want to add a different investing style to your portfolio, this is a good option.

Reliance Growth

Risk: High

NAV: 159.17

Performance

In calendar year 2002, it gave a return of 56% and the next year, 156%. In 2004, the return was 42.57%.

These performances have led to this fund being very popular. It managed a meagre Rs 39 crore in June 2003 and manages Rs 1,322 crore today.

Our take

Reliance Growth is an unconventional diversified equity fund. It follows multiple investing styles. In buys some stocks and holds it for long but buys and sells others very quickly.

It also does not invest all the money with it but keeps a high amount as cash to capitalise on any new opportunities.

It has a unique investment approach and gives great returns making it suitable for all investors.

Reliance Vision

Risk: Moderate

NAV: 103.13

Performance

Trailing returns represent a fund's gains over a specified period of time, five years in this case.

After posting losses in the first half of 2001, the fund's fortunes changed after completely after September 11. In 2002, the fund gained 75% while the average return of diversified equity funds was just 20%. In 2003, it gained 155%, while its peers gained an average of 112%.

2004 was not a good year and this year, the fund seems to be back in shape.

Our take

By shuffling its portfolio between large-caps and mid-caps, this fund has earned handsome returns for its investors. It boasts one of the best five-year trailing returns of 34.69% as on July 7, 2005.

Illustration: Dominic Xavier

Value Research

 

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