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Shanthi Venkataraman

INVESTMENTS may be considered in Principal Growth Fund. The fund has performed impressively over the past year, delivering a return of nearly 50 per cent. Its three-year track record compares well with the likes of HDFC Top 200 and Franklin Bluechip, which usually figure among our top picks.

First-time investors may consider this fund once options such as Bluechip, HDFC Top 200 and HDFC TaxSaver have been exhausted, as these funds boast a longer track record. Other investors may consider this fund if they wish to diversify their portfolio. Investments may be done through a systematic investment plan to minimise risk arising from bad timing.

Suitability: The fund carries the normal risks associated with a typical diversified equity fund. It follows a rather conservative strategy, capping the holdings in each stock to less than five per cent. Sharp price movements in any single stock would not, therefore, dictate the fund's performance.

Performance: Launched towards the end of 2000, the fund found itself in the thick of a market meltdown in 2001. The fund, however, weathered the downturn better than most other funds, matching the returns of the benchmark indices.

In subsequent years, the fund has comfortably outperformed the benchmark indices.

In 2003, its return of about 90 per cent did not place it at the top of the pile of funds, as many funds delivered a return in excess of 100 per cent.

Over the past year, however, it has emerged among the better performers over the past year. The portfolio has a blend of mid- and large-cap stocks, which has worked in favour of the fund.

Diversified funds such as Franklin Bluechip or Principal Equity that stick predominantly to large-cap stocks have seen modest returns over the past year.

Portfolio overview: Earlier, the fund had a rather concentrated portfolio.

In May 2003, for instance, the top three sectors accounted for about 50 per cent of its assets. Now, after a change in management, the fund wears a more diversified look.

The top sectors — IT, auto and oil — account for less than 35 per cent of its assets. More stocks have been packed into the portfolio as well.

Mid-cap stocks such as Gujarat Alkali, Dabur India, IOB, IVRCL and Arvind Mills figure prominently among the fund's holdings.

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