f you are looking at investing in the stock market, but don't have the stomach or knowledge for it, a diversified equity fund is a good place to start.
True to its name, a diversified equity fund allows you to participate in the equity market while offering diversification. The fund manager will invest the money in different companies of different sectors, giving you plenty of variety.
Principal Growth and HSBC Equity are two such funds that can be considered by any investor looking at a long term investment of a few years.
The performance of both these funds has not only been confined to the recent rally in the stock markets. They have also done well in protecting returns through the initial dull phase of 2004 (January to May).
With a number of funds running to invest in small-cap companies, these funds have shown a preference in investing in large and mid-cap stocks. This refers to the market capitalisation.
Market capitalisation = Market price of the share x Number of shares in a company
Large-cap companies = Market cap of over Rs 1,500 crore (Rs 15 billion)
Mid-cap companies = Market cap between Rs 25 crore (Rs 250 million) and Rs 1,500 crore (Rs 15 billion).
Principal Growth: On the comeback trail
- After being in the bottom half of the diversified equity fund category through 2003, Principal Growth gained 26.8% by November 25, 2004. Due credit must be given to the new fund manager Shyam Bhat, who took over in 2004.
- The fund's portfolio is widely diversified across 35 to 45 stocks with no single sector accounting for over 15% of total investment.
In early 2004, when the going was tough for equity funds, the fund increased its investments to automobiles and construction, which provided a cushion. As equity markets took off after June 2004, the fund benefited from investing in technology, automobile and energy stocks. Infosys and TCS are among its top holdings.
Though Principal Growth has invested heavily in large-caps, it has also been fortunate with its mid-cap holdings. Mid-caps like IVRCL Infrastructure, Pantaloon and Blue Dart, helped the fund earn good returns.
Current NAV: 28.65
Return since launch (October 2000): 27.24%
Three year return: 41.73%
One year return: 50.39%
These figures are as of March 7, 2005
HSBC Equity: The racy newcomer
- Though only two years old, this fund has proved strong competition to its peers. Its performance has led it to become the third biggest diversified fund in India. If it continues to do so for long, it could well emerge one of the great investment stories for Indian equity investors.
In 2003, the fund did not hesitate to invest in the technology sector even when its peers were not doing so. It increased its holding in Infosys just ahead of its September 2003 results, expecting the stock to do well and thus benefited.
But the fund was cautious in the banking sector and missed the rally of 2003.
Investments in auto stocks like Mahindra & Mahindra and Tata Motors also proved profitable. Both stocks appreciated handsomely that year.
The fund manager of HSBC Equity picks up good sectors to invest in and within the sector makes some smart stock picks.
Current NAV: 38.3514
Return since launch (December 2002): 81.64%
One year return: 37.36%
These figures are as of March 7, 2005
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