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A Racy Fund

With a portfolio decisively tilted towards small- and mid-cap stocks, the fund is highly volatile, but those who keep the faith here are rewarded suitably.

In its 24 quarters of existence, the fund has under-performed the category only nine times. Of course, it has not protected the downside too well, but the fund has recovered when markets have turned upwards. Over the years, it has earned much more than an average peer--in the five-year period ending December 14, 2005, the fund has generated a whopping 40.20 per cent return against the category average of 25.51 per cent. This year too it has left its competitors way behind. Till December 14, 2005 this year, its 67.26 per cent return is much more than 47.21 per cent gain of an average peer.

The fund had a disastrous start. It suffered huge losses in the tech meltdown and dipped nearly 35 per cent, almost twice the category average during June 2000 quarter. But it staged a strong comeback soon and minimised losses in 2001. With an allocation to defensives like fast moving consumer goods and healthcare stocks, the fund lost just 6 per cent against the category average loss of 20 per cent. In 2002, the fund under-performed the category, as it had a low exposure to mid-caps, which did better than large-caps. This made the fund consider mid- and small-caps seriously and since then, it has produced exceptional results. It provided category beating returns of 36.46 and 150 per cent in 2004 and 2003, respectively.

The fund manager's ability to pick opportunities among lesser-known stocks early enough is praiseworthy. At times, the fund has taken huge concentrated bets. Even exposure to small caps has touched a high of 66 per cent. But the fund tries to mitigate the risk of investing in small-caps by keeping the portfolio well-diversified across sectors and stocks. This year though, the fund has maintained exposure to a large number of stocks and also cut dependence on top holdings in view of the consistent rise in equity markets.

In October, the fund underwent a change in its fund manager--Krishna Kumar, under whom the fund had prospered, has been replaced by Sankaran Naren. It would be interesting to see how he handles this hot performing fund.