The Hindu Business Line : Sundaram Mid-Cap: Hold

INVESTORS in Sundaram Mid-Cap Fund can stay invested as the portfolio has room for further upside. The net asset value is up 9.8 per cent in the last two weeks.

A broad-based rally in mid-cap stocks explains the spurt in performance. But any further upside may not come through in the kind of compressed time-frame witnessed recently.

In this backdrop, this may not be the appropriate time to pare exposures. Fresh investments can be avoided now as the magnitude of gains may not be as sharp, unless one is willing to invest and wait for a long period (two or three years). If such a horizon drives the investment decision, there may be better opportunities to invest when prices show weaker trends.

Suitability: Mid-cap stocks generally carry a higher degree of volatility. The impact cost (degree of price changes due to a buy or sell order of a particular size) can also be high in such stocks.

In the banking, auto ancillaries and engineering sectors, this is not much of a problem now. This is due to the market fancy enjoyed by mid-cap stocks from these sectors. But once profit-booking emerges, the picture could take a different hue.

In general, the risks associated with mid-cap stocks are higher than a typical diversified equity fund. And there is little scope for the kind of returns that more than compensate for the risks. However, Sundaram Mid-Cap Fund has not been around long enough to make a call on its ability to deliver on this score.

Portfolio status: The fund is heavy on banking sector stocks with a 23.4 per cent weight. Union Bank, Andhra Bank, Vijaya Bank and Allahabad Bank are the prominent holdings.

Engineering and auto sector stocks form the two other vital pegs on which the portfolio rests. The stocks in the portfolio are by and large of good quality. This is important as, in a fund such as Sundaram Mid-Cap, there is much scope to dilute the quality of holdings in an attempt to chase returns. The consistency in this context needs to be watched out over a longer time-frame to improve comfort levels with the investment strategy used.

: Sundaram Mid-Cap Fund was launched in July 2002. The minimum investment amount is Rs 5,000. The entry load is 2 per cent. There is no exit load. The manager is Mr Anand Radhakrishnan.

The fund offers dividend and growth options. It is better to stay with the dividend option due to the tax breaks available for equity funds. The asset base is Rs 5.9 crore.<137>

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