The fund’s impressive returns are a healthy reminder of its risk. A leeway to go up to 25 per cent in equity with a tendency to dabble in mid and small caps, makes it avoidable to the strictly conservative.
The only year it posted an underperformance was 2010, due to the large-cap equity bias, which changed quickly to a multi-cap exposure. Over the past year, its large-cap allocation has fluctuated between 21 and 69 per cent.
The equity portion of the portfolio is frequently churned. For instance, between September and December 2010, the equity allocation (including derivatives) dropped from 26.81 per cent to 9.67 per cent to again rise to 24.60 per cent. A natural outcome of such churning would be a change in the number of stocks. In January 2011, just six stocks were present in the portfolio but rose to 22 within four months. Ironically, in this instance, the equity allocation did not vary much but ranged between 22 and 25 per cent; it was individual stock allocation that led to the change in number.
The fund’s allocation to a single stock tends to exceed 4 per cent only in large caps. Recently (December 2011), allocation to UTV Software Communications touched 5.53 per cent. Although such bets are not the norm, if it does backfire it would hinder returns.
On the debt front, the portfolio is high quality with a low maturity profile which rarely exceeded one year. Though that has changed in the past two years, it has never crossed 2.5 years.
An interesting point to note is that this fund did not declare any dividend the entire calendar 2008 and the first three months of 2009. While this is no reflection on quality of the fund (it actually delivered higher than the category average that year), it would have affected investors who want some sort of payment from such funds.
Its expense ratio is on the higher side.