Lately, the Indian mutual fund industry has been flooded with mid-cap funds. However, this return powerhouse remains our first choice. Here's why.
In the last four calendar years, this fund has managed top-quartile performances. In 2003 and 2001, it was the hottest fund. It also boasts of the best five-year trailing return of 41.65 per cent as on July 6, 2005. Since the beginning of 2005 till July 6, 2005, the fund is up 17.16 per cent and is way ahead of the average peer's 11.88 per cent gain.
Fund Manager K.N. Siva Subramanian is an expert at earning superlative gains from mid-caps. Still, you should be mentally strong and ready to stay invested for the long-term here. Mid-caps are always risky and this fund is no exception. Its standard deviation of 7.79 is on the higher side in the category. But you should be ready to swallow it, as the fund more than compensates for it through superlative returns.
The fund adroitly manages the poor liquidity associated with mid-cap stocks by investing in a large number of stocks spread across various sectors. The fund manager also has a strong belief in the buy-and-hold strategy. For instance, the fund has held Indian Rayon since November 2000 and hugely benefited from the rally in the stock. The stock is in the top-five holdings of the fund since the last two years. Some other prominent buy and hold clicks that it is holding are IPCA Laboratories, GE Shipping and Eicher Motors.
The risk of investing in mid-caps is that when equity markets tumble, mid-caps fall more rapidly than the large-caps. Thus, the fund is prone to wide swings as and when the markets change direction. 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.
This article was originally published on August 29, 2005.
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