This is a fund that likes to take risks on the equity side and shut up its critics by delivering a great performance. Its 3-year returns of 30.78 per cent rank it third in the category. From the year 2000 to 2003, its equity allocation averaged around 55 per cent. As the bull run picked up in momentum, its equity allocation too rose and has averaged at 66 per cent in the past three years.
Though BHEL, Infosys and Coromandel Fertilisers have been some of its long-term holdings, the fund by and large does not believe in the buy-and-hold philosophy. Even with a stock like Reliance Industries, it has entered, exited and re-entered.
Besides having a predominantly equity-oriented portfolio, the fund is also aggressive in its market-cap allocation. It does not hesitate to take substantial bets on mid- and small-cap stocks. In 2004 and 2005, its mid-cap allocation averaged at 33.79 per cent and small-caps at 26.08 per cent. Though the mid- and small-cap allocation decreased in 2006, it was still high at 43.30 per cent. To balance the risk, the fund is well diversified in over 40 stocks. While this aggression has probably helped in generating good returns, it is worth noting that Kotak Balance's expense ratio of 2.49 also inches towards the higher side.
The fund has a good track record and has always enjoyed a four- or five-star rating. However, its performance in the recent past has come under the spotlight for the wrong reasons. After delivering a top quartile performance in 2004 and 2005, it dipped in 2006. In the last four quarters, Kotak Balance has underperformed the category average. For a while, the fund refrained from investing in corporate bonds or gilts. But now it has begun investing in corporate debt and even dabbles in AA+ and AA paper.