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Quality Conscious

With over 89 per cent of its assets invested in just five stocks, this fund offers an ultra-concentrated and large-caps dominated portfolio. Invest in it if you want to bet upon the top few IT companies

Franklin Infotech looks more like a stock rather than a fund. At July end, Infosys alone accounted for 41 per cent of the portfolio, while over 89 per cent of the fund's assets were concentrated in five stocks. This is what you get here-an aggressive, ultra-concentrated and large-caps dominated portfolio. Sector funds are meant for risk takers but even among them, only the doughty should consider this fund.

There's another way to look at this fund. To buy even a single share of top five bluechip IT companies today, you will have to invest at least Rs 6,000. But through this fund, you can afford a collection of high quality technology stocks for just Rs 1,000 a month through the SIP route. Experienced management of Franklin Templeton Mutual Fund is an added advantage.

Franklin Infotech managers have always believed that sector funds fall at the top of the risk ladder and therefore should be managed that way only. Historically, they have invested in around 15 quality stocks. But since the start of last year, the portfolio has further been concentrated in around 10 stocks. Naturally, the dependence on individual stocks has increased further with allocation to top-five holding remaining above 80 per cent since mid-2005.

Initially, this strategy did not work that well as Franklin Infotech registered its worst ever performance vis-à-vis its peers last year-the fund gained 43.75 per cent to miss the category average return of 50.32 per cent and was ranked sixth in the seven-fund category of technology funds. However, the same strategy and dependence on quality stocks clicked during the recent market crash-while an average tech fund was down 16.52 per cent between May 10 and June 30, the fund held on to its ground to some extent with loss of just 9.32 per cent. This has made the fund the best in the category so far this year-its year to date returns of 13.72 per cent (as on August 18, 2006) look much better than the category average of 9.91 per cent.

Historically, the fund's performance has been average and has seen wild swings in its fortunes. From 2000 to 2002, it delivered in line with average peers. In 2003, the fund failed to capitalise on the mid-cap rally despite having a good exposure (an average 37 per cent) to them-it finished in the bottom quartile of the category with a return of 37.43 per cent. 2004 proved lucky. It signed off 2004 as the hottest tech fund with a return of over 30 per cent. Then again in 2005, it became a laggard.

Invest here if you are looking for a concentrated exposure to top IT companies and can withstand huge volatility that comes with a concentrated portfolio.