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Balancing a Turnaround

We like this fund's turnaround story and its ability to protect the downside risk. A large-cap bias, relatively low expense ratio and below average standard deviation make this fund one of the better balanced funds.

We like this fund's turnaround story and its ability to protect the downside risk. A large-cap bias, relatively low expense ratio and below average standard deviation make this fund one of the better balanced funds. It's these qualities that have made us include this fund in our fund focus section despite a below average performance in the last four quarters.

Coming back to its underperformance, DSPML Balanced has added 37.42 per cent in the previous four quarters against the 40.73 per cent return of its average peer. A stress on large-caps over mid-caps, as well as an overweight position in healthcare and metal stocks, has affected the fund's performance.

But this fund has managed to bounce back smartly out of similar situations in the past. For example, during its early life a tech-loaded portfolio resulted in poor performance through 2000 and 2001. It found a place in the bottom half of the category in the two years. It reacted to the situation by cutting the exposure. The fund's luck finally unfolded in the last quarter of 2002, when the overall sentiment in the equity market revived. Since then, the fund has never looked back. In the last two calendar years, the fund has put up a top quartile performance.

A large-cap, diversified equity portfolio together with quality debt holdings has worked for the fund. Barring few occasions, especially during equity market rallies, the fund has re-balanced its portfolio in a highly efficient manner. On an average, it has maintained equity:debt exposure of 64:36 per cent.

The fund has polished its skills of protecting returns in tough times. For example, DSPML Balanced lost less than average peers in the first half of last year. In the first quarter of 2003 too, the fund slipped only 1.28 per cent against the 3.96 per cent loss of average peers.

On the debt side, the fund has been quality conscious. However lately, it has started betting on below AAA papers to boost returns. In the last five months, below AAA papers have occupied nearly 8.50 per cent of the portfolio. Rest of the debt portfolio is heavily tilted towards high quality corporate bonds.

A low risk debt portfolio and a bias towards large-caps in equities makes this fund a safe choice.