This mid-cap specialist is a return powerhouse. In spite of the growing number of mid-cap funds, Franklin India Prima remains our first choice. There are no half measures here–you will either find it in the first quartile of its category or in the bottom. This year (in 2004), however, the fund is up 20 per cent beating three-fourth funds in the category. And the story is similar for the previous years–it has finished each of the past three years among top three funds.
But you have to be mentally strong to invest in it. Mid-caps are always volatile and the fund's volatility should not come as a surprise. Its standard deviation of 8.22 in the past three years is on the higher side in the category. But an impressive five-year annualised return of 28 per cent more than makes up for it.
Manager K.N. Siva Subramanian has a knack of picking stocks that are likely to grow rapidly. In order to stay clear of the poor liquidity associated with mid-cap stocks, the fund takes small exposures in a wide array of stocks. It prefers to hold on to the stocks it believes in and this selective buy-and-hold strategy has worked well. For instance, the fund has held Indian Rayon (the fund's second largest holding) since April 2002 and kept on increasing its exposure at attractive valuations. The stock price has more than doubled in this period. The same holds true of other holdings like IPCA Laboratories, GE Shipping and Eicher Motors.
The volatility in mid-caps indicates that when investors lose interest in the market, they fall more rapidly than the large-caps. Thus, the fund is prone to wide swings as and when the markets change direction. For instance, December 2003 was a great month for the fund as it posted one of its best performances in its decade-old existence gaining 24 per cent. Its sector calls in services, textiles, chemicals and automobiles were brilliant in hindsight. However, the very next month, the markets turned bearish and the very same sectors proved to be its undoing as it lost about a tenth of its value in a month. Thus, the real challenge for the fund is to limit the downside when markets tank.
Overall, it has managed to squeeze superlative gains out of risky mid-caps and should find a place in every portfolio, though in a small dose.
This article was originally published on January 25, 2005.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
