Tata Pure Equity Fund: Invest

Recommendation: Invest

Suresh Krishnamurthy

FRESH investments may be considered in the equity scheme of Tata Pure Equity. The net asset value of the fund is Rs 12.94 per unit.

Its performance between May and August, when the market was decidedly bearish, was quite impressive. However, the performance since August has been rather indifferent. Overall, however, the fund is one of the top performers in the six-month period ended November.

The fund follows an active fund management strategy of not only churning the portfolio but also pulling out money from the equity market and investing it in the money market. This strategy has left its mark on the fund's performance in the last six months.

First, the strategy of maintaining close to 34 per cent in cash at the end of June, and around 27 per cent at the end of July, when the market was on a downtrend, helped the fund's cause. However, after it proceeded to deploy these in specific stocks, the performance deteriorated steadily.

Part of the reason for the poor performance post-August could be its active fund management strategy. Since it held a sizeable proportion of funds in cash by end-July, and proceeded to deploy them gradually, it is possible that by the time the funds were deployed, stock prices had actually returned to higher levels, adversely affecting performance. However, an investor may be concerned only with the overall performance during both the `down' and `up' legs of the market cycles where Tata Pure Equity Fund's performance was notable.

Suitability: While the fund's performance in the past six months has been impressive, such returns may not recur in the future. Even as this may be true for all funds, this highlights the fact that the strategy of timing the market may pay off only once in a while.

It has been found, in overseas markets, that timing the market does not actually generate good returns over a longer time-frame. This may be true for the Indian market too, and more importantly, compared to its peers, the fund may fare poorly on a risk-adjusted basis.

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Investors comfortable with this profile can consider investing in the fund. The extent of exposure to this fund needs to be based on two factors. One, it is critical for the fund to sustain its performance over a longer period. Since this strategy's pay-offs are expected to be poorer, it may be better to enhance exposures gradually, after judging the fund's performance.

The other factor is the investor's risk preference. Investors who prefer low-risk strategies can consider a lower exposure. Existing investors should also consider rationalising their holdings in Tata Pure Equity Fund in the light of its performance and their risk preference.