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A Fund on Steroids

Kotak Balance has a reasonable long-term performance record. In four of the last five calendar years, it has landed a place in the top-half of the category.

This fund is on steroids. As on September 27, 2005, it has raced to gain a whopping 32.71 per cent since the beginning of 2005 and is way ahead of its average peer's 23.92 per cent gain. Last year too, it had returned nearly 25 per cent to win a place among the top three funds in the category. In the last five quarters, it has outpaced the category average returns by a huge margin.

The fund's tryst with mid- and small-cap stocks has proved highly rewarding. On a large-cap diet till late 2003, the fund missed the mid-cap rally of that year. By the time it decided to change tack, it was too late. The fund delivered 62.88 per cent but fell short of the 67 per cent gain of average peers. However, it reshuffled its portfolio in favour of mid and smaller companies towards the end of 2003 and since then it has rewarded its investors with some extraordinary returns. The fund does not hesitate to bet high on small-cap stocks. A high dose of mid- and small-cap stocks prove rewarding but the reward comes laced with a high degree of volatility. Therefore, investors should be ready to stay put for the long term.

This year, the fund has gained by timing its exit from non-performing sectors like auto, pharma and metals and betting on basic engineering, chemical, consumer non-durable and financial sector stocks.

The fund has also benefited by not being very rigid with its asset allocation in the past. For example, when the bulls returned to the equity markets in early 2002, the fund reduced its bond exposure from an average 41 per cent in 2001 to around 33 per cent in 2002. The portfolio has once again gone for a complete overhaul. The exposure to equities has gone up to an average 66 per cent of the portfolio in the first seven months of 2005. On the debt side, corporate bonds and gilts have been completely replaced by commercial papers. However, Kotak Balance has not compromised with the quality.

A well-diversified portfolio is also a plus here. The fund always keeps 20 to 30 stocks, and limits exposure in individual stocks to around 6 per cent at most. Kotak Balance fund's versatility is hard to beat. Long-term investors would be rewarded here.