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Alone in the Crowd

If you are looking for pure midcap exposure then Franklin India Prima is for you. Though it has been volatile, this has been more than compensated for by its returns.

You will find this fund either in the first quartile of its category or the last. But that shouldn't stop you from investing here. Franklin India Prima apart from being the longest-serving mid-cap fund also has a track record of good performance over the years. Though mid-caps by definition are volatile this fund's returns have more than made up for this. Its sharpe ratio—a measure of risk-adjusted returns—is one of the highest in the category.

Those investors who have been able to stomach Franklin India Prima's volatile nature—and have stayed put across time periods—have been handsomely compensated by it. The fund's 5-year returns of 29 per cent bear testimony to this. The fund manager looks for companies with rapid growth potential and the ability to become market leaders. Relative illiquidity of mid-cap stocks has led Franklin India Prima to take a small exposure to a large number of companies.

Occasional bumps notwithstanding, the fund draws attention to itself for its right entry and exit strategy. The fund manager holds on to stocks for longer than usual giving them a chance to recover, but exits them if there is no improvement. Stocks like Ashok Leyland, Aventis Crop Science and Blue Dart Express are an example of this. However, during the bank and IT stocks rally in the last quarter of 2002, the fund made a rather late entry.

Launched around the biggest boom of IPOs in 1994, Franklin India Prima went ballistic in the first year. However, the period between 1995 and 1997 saw massive erosion in its asset base. After restructuring its portfolio in 1997, the fund bounced back during the IT-led rally in 1999 and early 2000. While Franklin India Prima's IT exposure was around 20-25 per cent, it was mid-cap holdings that did the trick for it. A 200 per cent return in 1999 was followed by a 44 per cent loss in 2000.

That the fund actively churns its portfolio is evident from its high portfolio turnover ratio in the category. The search for potential leaders has seen the fund tap sectors like chemicals and service while keeping a low exposure to defensives like FMCG. Those looking for exposure to mid-cap stocks will find this fund to their liking. Limited exposure in this fund should boost returns for an equity portfolio dominated by large-cap funds.