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It is seen that old funds like Franklin India Prima and HDFC Equity are not performing up to the mark as compared to new funds. Is it because of their large size?
- Sanjeev Kumar

It is seen that old funds like Franklin India Prima, HDFC Equity are not performing up to the mark as compared to new funds. Is it because they have grown substantially and the fund managers are unable to park the money properly in the growing market. The new funds are returning more than the old funds.
-Sanjeev Kumar

Your observation is right that funds like HDFC Equity and Franklin India Prima have under-performed in the past 3-6 months. But the reasoning is neither correct, and we believe, nor relevant. If you look at the top quartile performers over the six-month period ended April 30, 2006, you will find big as well small funds, new as well as old funds on this list. No clear trend can be established.

Moreover, if large size was to be the reason for under-performance, then it should have been the new funds which should have under-performed and not the old ones.

Some of the biggest funds in the industry today were launched in 2005. In any case, performance measurement over such short periods tends to be of little use in case of equity funds, where you should focus more upon the 'broader' picture.

Look at the performance of these funds over the years and you would realise the value they add with their consistency. Stock prices move randomly rather than in a uniform, linear pattern. Therefore, you may find a particular fund lag behind or race ahead of others as the prices of its chosen stocks move. There is nothing meaningful to decipher from the movements over short periods. A fund's true worth is proved by its ability to stay among the better funds year after year. And the funds that you have mentioned qualify well on this yardstick.

But at the same time, it cannot be denied that beyond a certain point the increasing size of a fund can start impacting its performance, which may be more prominent for mid-cap funds. However, we are still far from deriving any such conclusion firmly.



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