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ONE of the few equity funds with a robust long-term track record, HDFC Equity Fund (formerly Zurich Equity Fund) continued to deliver good performance over the last year. It is still a good investment option for those building an equity portfolio. But history suggests that even the well-managed equity funds can carry downside risks for investors who enter the fund after a sharp run-up in equity values.

Therefore, those who wish to avoid such downside risks should wait for a decline in broad market values before investing in this equity fund.

Suitability: The fund carries a high-risk profile, relative to normal equity funds, on two counts. The portfolio is aggressively managed. The fund takes concentrated exposures to just a few stocks at a time. But over the past five years, the fund has delivered reasonable risk-adjusted returns over different market cycles.

Despite significant new inflows, the fund continued to invest in a relatively small basket of stocks, in keeping with its long-term investment strategy. Between June 30, 2003 and July 30, 2003, the fund has made a few changes to its portfolio:

Stocks added: BHEL, Century Textiles and Corporation Bank were added.

Exposures enhanced: The fund bought additional shares in a range of its existing holdings — SBI, HPCL, Tata Motors, Grasim, Bharat Electronics, PNB, NALCO, Crompton Greaves.

Exposures pared: The fund booked profits on holdings such as ITC and Ranbaxy Labs.

Sectoral allocations: As was the case at the end of June 2003, banks and oil companies remained the fund's largest sectoral exposures. The fund had 21 per cent of its assets invested in banking stocks and 13 per cent in oil and gas stocks, by end of July 2003. The cash position was at 5 per cent.

Between June 30 and July 31, the assets rose 27 per cent to Rs 519 crore. Only about 6 per cent of the rise in assets was attributable to appreciation in the value of the portfolio, suggesting that the fund has sizeable inflows during this month.

Aarati Krishnan

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