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Aarati Krishnan

INVESTORS seeking to diversify their equity portfolios may consider investing in Sundaram Growth Fund, the diversified equity fund from Sundaram Mutual.

In terms of performance, the fund has been a middle-of-the-roader. In the six years since launch, it has substantially outperformed both the Nifty and the BSE 200 index.

The returns have also been fairly consistent over market cycles. But the absolute returns have been of a much lower order than top performing equity funds such as the Franklin India Bluechip Fund, Zurich India Equity Fund and Alliance Capital Tax Relief. Therefore, investors seeking equity exposures must first consider the above funds before taking exposures in Sundaram Growth.

Suitability: The portfolio strategy stresses stock-specific diversification. Therefore, the fund consciously restricts individual stock exposures to 5 per cent or less, to minimise the vulnerability of the NAV to the moves in each of its holdings. This strategy would reduce the risks of investing in this fund vis-a vis a focussed fund. But it has a couple of disadvantages.

For one, it substantially expands the number of stocks in the portfolio and a large number of the holdings may have to rise in tandem for the fund to turn in a good performance.

Second, the fund manager also has to make a larger number of calls on the portfolio than would be the case with a focussed fund.

Performance: In the six-year period since launch, Sundaram Growth Fund has delivered a substantial outperformance of both the Nifty and the BSE 200 (the fund's chosen benchmark). Holding period returns on the fund have been at around 75 per cent (without annualising) after factoring in the dividend payouts made in 1999, 2000 and 2002.

In the holding period since the fund's launch, the Nifty has actually delivered negative returns of around 5 per cent.

The fund's returns have also accrued fairly consistently, with the fund managing to beat the Nifty in five out of the past six years. No more than four or five diversified equity funds have managed to do this.

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