Kothari Pioneer Primaplus: Invest

Recommendation: Invest

Suresh Krishnamurthy

FRESH investments in Kothari Pioneer Prima Plus can be contemplated with a medium-term perspective.

It is a diversified fund with a focus on both large-cap and medium-cap firms, has a reasonable track record and fair potential.

The performance of Prima Plus has been moderate, especially when compared to Kothari Pioneer Bluechip. The under-performance could be due mainly to its exposure to mid-cap firms. In the past few years, barring a few celebrated cases, large-cap firms have tended to outperform the mid-cap stocks. However, over a longer term, the possibility of mid-cap firms outperforming the large-cap firms is high.

Suitability: The risks involved in investments in a diversified fund have been more or less been close to the market average, while the returns were better over a longer time-frame. However, compared to a diversified fund, such as Kothari Pioneer Bluechip, the risks are higher because of its exposure to mid-cap stocks. In this backdrop, investors looking to minimise risk in their equity investments can allocate a lower proportion of their portfolio in this fund.

Investors can opt for the dividend option for now. After evaluating the changes in next year's Budget regarding taxation of dividends distributed by mutual funds transfer to the growth option can be considered.

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Portfolio allocation: Barring the top few exposures, Prima Plus is a substantially diversified fund which is a perhaps a reflection of its exposures to mid-cap stocks. The fund's objective is to focus on stocks that generate returns far in excess of their cost of capital. Generally, the fund has stuck to stocks with a good track record.

Sectorally, the top exposures are IT, healthcare and banks and FIs. In terms of stocks, the fund's top exposures are Infosys Technologies, HCL Technologies, Hughes Software, Dr.Reddy's Labs and Pfizer. In the IT sector, the company has almost completely avoided exposure to mid-cap stocks and generally exposure to mid-cap stocks have been made in the healthcare, engineering, automobile and consumer goods industries. Prominent mid-cap stocks that find a place in the portfolio are HDFC Bank, Hoechst Marion, Kirloskar Cummins, Asian Paints and Madras Cements.

The avoidance of exposure to mid-cap stocks in the IT sector is a factor that reduces the risk involved in an investment in the fund considering the fundamentals of the set of listed mid-cap stocks. It appears that the portfolio has been constructed on the assumption that large-cap firms in the IT sector would out perform the medium-cap firms. If this portfolio allocation bias in favour of large-cap IT stocks continues, then to an extent, the outperformance of the fund especially compared to its peers would be predicated on this assumption coming true.

Performance: Over three-year and five-year time-frames the fund has outperformed the indices. However, it has underperformed Kothari Pioneer Bluechip over most time-frames. Also, going by the risk-adjusted returns figures published by Kothari Pioneer, the fund has underperformed Kothari Pioneer Bluechip.