The Hindu Business Line : Principal Large Cap Fund: Hold

Unitholders can retain their investments in Principal Large Cap Fund as it has recorded a reasonable performance vis-à-vis its benchmark and peers since its launch (annualised 46 per cent return, relative to the Nifty's 34 per cent). Though the fund lost significant value during the May correction, it participated actively in the subsequent recovery.

Its large-cap focus has helped its recovery during the pull-back. Since the fund was launched in November 2005, it is yet to witness a complete market cycle, it is thus too early to judge the performance. However, the record so far inspires confidence as it compares well with established funds in this category.

The fund's mandate permits it to invest in stocks with market capitalisation over Rs 3,500 crore. In practice, the fund has invested 90 per cent of its assets in large-cap stocks with a market capitalisation above Rs 5,000 crore.

Suitability: Given the focus on large-cap stocks, Principal Large Cap Fund may carry a lower risk profile than a typical diversified equity fund that invests across the market-cap range. The fund does have some flexibility to invest in stocks below the Rs 2,000-crore market-cap and, therefore, investors may be able to benefit from limited exposure to mid-cap stocks.

Performance: The fund has rewarded investors with a 46 per cent return since its inception and this is comparable to large-cap peers such as HDFC Top-200 and Franklin India Bluechip Fund. The fund generated a return of 25 per cent for the past year, against 21.8 per cent on the S&P CNX Nifty.

The portfolio appears to be conservative, with sectors such as construction and cement, which witnessed a phenomenal rise during the past year, accounting for limited exposures. During the post-Budget correction the fund contained its decline to 10 per cent, against the Nifty's 13 per cent fall. The fund trailed its benchmark in just four of the past 12 months on a monthly return basis.

Portfolio Overview: The fund has 35 stocks in its January portfolio and features some concentrated exposures. The top 10 preferred picks accounted for 49 per cent of portfolio. Principal Large Cap appears to book profits regularly and large-cap stocks such as BHEL, Bharti Airtel, HLL, Grasim and ITC have stayed in the portfolio over the past year.

Fund facts: Mr R. Srinivasan manages the fund; the assets under management are Rs 275 crore. An entry load of 2.25 per cent is charged for investments less than Rs 3 crore.

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