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Small Wonder

This mid and small-cap believer has emerged as the hottest equity fund of 2002. Though it has been less volatile vis-à-vis its peers, it is not suited for short-term investors. Those long-term investors who are not averse to risk will be comfortable here.

Reliance Vision, which never figured among the top 10 funds in the diversified equity fund category, has ended the year 2002 with a bang. It has emerged as the hottest equity fund of the year with a return of 74.58 per cent, through 2002. Despite having a high exposure to mid and small-cap stocks, the fund has been less volatile vis-à-vis its peers. Even the fund's long-term track record speaks volume about its performance. For instance, its 3-year and 5-year returns rank among the toppers in the category.

Apart from delivering above-average returns during bull phases, Reliance Vision has managed to do well when the going has been tough. Although the fund's returns remained in the negative territory during 2000 and 2001, it managed to do better than almost two-third category players.

The fund, which has a weakness for mid and small-cap growth stocks, has always maintained a well-diversified portfolio. For instance, during the tech boom of 2000, the fund's technology exposure was capped at 26 per cent, and it was spread across 27 stocks. However, when the markets crashed, this fund suffered far more than its category on account of its mid-cap picks. Interestingly, IT biggies like Infosys and Wipro have never made an entry into Reliance Vision's portfolio.

This fund which has a reputation of quickly re-aligning its portfolio, had reduced its tech holding to 4 per cent by September 2000 and turned to large-caps. Thus, till September 2001, the fund could manage only an average performance. Post-9/11, it once again developed a liking for mid-cap, which coincided with the mid-cap rally. This helped the fund to deliver ballistic returns through 2002. However, initially, it wasn't very equity-oriented, it made substantial investments in debt instruments, which touched 47 per cent in 1997.

In a nutshell, the fund largely focuses on spotting companies that offer good value. In the absence of any such company, the fund doesn't hesitate to sit on cash, as is the case now (cash component: 14.11 per cent). In the past one year, around one-fourth of the fund's assets had been parked into cash.

Since this fund is a believer in mid and small-cap stocks, Reliance Vision is not suited for short-term investors. Only long-term growth aficionados who can handle risk will be comfortable here.