The fund's volatility remains on the higher side, something that majority of the balance fund investors would find unpalatable. However, it compensates for it through good returns. For instance, the fund has delivered top-quartile returns in the last two calendar years and has been consistently rated four or five stars by Value Research. The run has continued this year as well--as on April 3, the fund's 32.08 per cent return is much better than an average fund's 23.25 per cent.
The fund moves quickly between sectors and stocks. This tend to increase the pressure on its expenses (which is one of the highest in the category), but so far the fund has proved to be rewarding.
Initially feeding on a large-cap diet, the fund failed to relish the mid-cap rally of 2003. However, a new manager changed everything. Rushabh Sheth, who assumed the responsibility in August 2003, overhauled the portfolio completely and opted for mid and small caps in heavy doses. The strategy clicked and the fund took full advantage of the rally that followed in 2004 and 2005.
The fund once again changed hands in late 2004. Though the new manager Anand Shah has followed the path opted by his predecessor, he has attempted to improve the portfolio quality by cutting exposure to illiquid small-cap stocks. However, exposure to them still remains high at around 29 per cent.
Kotak Balance is not very rigid with its asset allocation. This has helped the fund make optimum use of its equity as well as the debt portfolio. In the recent times, it has kept equity allocation close to 65 per cent and benefited from the stock markets rally.
On the debt side, the fund prefers to maintain a quality portfolio. Of late, gilt has been completely replaced by commercial papers. Corporate bonds have staged a comeback. However, despite all the changes, the fund has not compromised on quality.
The fund offers a well-diversified portfolio. The equity asset is always spread over 20 to 30 stocks, with top five holdings accounting for nearly 20 per cent of the portfolio. Still, high volatility and frequent fund manager changes remain an area of concern. While Kotak Balance cannot be your first choice, the fund's versatility holds promise for long-term investors.