The fund's top quartile performance in the last two calendar years speaks much about its ability to generate returns, but it can also test your nerves during turbulence. Kotak Balance's aggression proves rewarding, but the recent crash shows that the ride can be quite bumpy. In the three-month period from May-July 2006, the fund lost over 13 per cent to under perform the category's loss of 11.43 per cent.
The fund will appeal to aggressive investors. Its volatility remains high, something that many balance fund investors would find unpalatable. But since it compensates for the higher volatility with good returns, it has consistently earned a four or five star rating. Even after factoring in the fall, the fund is up 20.5 per cent (as on Sep 25, 2006) since the start of the year, to be among the top five funds.
The fund is quite agile and moves quickly between sectors and stocks. This has translated into high expense ratio. At 2.5 per cent, it is among the costliest. But here again, the fund has so far justified it with good returns.
The complexion of this large-cap dominated fund, to start with, changed under the reins of Rushabh Sheth, who took over in August 2003. At that time, mid-caps were the way to go and the new manager did not hesitate in making the fund much more aggressive. The fund took full advantage of the rally that followed in 2004 and 2005. There was another fund manager change in late 2004 when Anand Shah took over. But this time, no significant change in the investment style was visible. However, the portfolio has been tilted a bit towards large-caps in the past 10 months and they now command over 50 per cent of the equity allocation. Overall, the fund offers a well-diversified portfolio. Equity assets are always spread over 20 to 30 stocks, with top five holdings accounting for about 20 per cent of the portfolio.
On the debt side, the fund prefers to maintain a quality portfolio. In the last couple of months, the fund has become very conservative and sized up its cash holdings. Gilts have become extinct while corporate bonds have made a comeback in the portfolio.