When I looked at the details of Reliance Growth and Reliance Vision, I found that Reliance Growth is predominantly a mid-cap fund, while Reliance Vision has comparatively less allocation to mid-cap stocks. Then why is the Risk Grade of Reliance Growth less than that of Reliance Vision? Please explain this as I feel risk should go up with mid-cap allocation.
-Shreyas
Mid-cap stocks are generally said to be more risky because of factors like less liquidity, uncertainties surrounding their growth prospects, lack of stability etc. But this is a very general statement and may not be true for all mid-cap stocks.
Moreover, in a mid-cap oriented fund, what matters is whether the fund manager has shown the ability to take the right buy and sell decisions to deliver good returns while being less volatile, even though he has been investing heavily in mid-and small-cap stocks. And this is precisely what our risk grade calculation captures. Here the emphasis is on under-performance vis-à-vis risk-free returns on a monthly basis. Therefore, it is entirely possible for a mid-cap oriented fund to have a low risk grade if it has been more consistent in its performance and has under-performed the risk-free rate in lesser number of months.
This article was originally published on July 05, 2006.
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