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Suresh Krishnamurthy

INVESTORS in UTI Service Sector can stay with the fund. The across-the-board run-up in stock prices has left only a handful of few sectors in which the downside risk is lower in the near term.

One such is the banking sector, to which UTI Service Sector has a large exposure. Investors can hold on to the exposure and reduce their holdings in the event of the sharp rise in prices.

Suitability: UTI Services Sector Fund is more diversified than other sector funds. It seeks to take advantage of the fastest growing segment of the economy — services. However, a buy-and-hold approach suitable for a diversified equity fund may not be appropriate in a sector fund.

There is need to book profits at regular intervals to ensure that the exposure to the sectors represented by the fund does not increase disproportionately in an investor's portfolio. This, in turn, pegs the risk involved in the fund at a level higher than that of a diversified equity fund.

Portfolio allocation: At the end of July, the fund was largely invested with cash and cash equivalents around 3 per cent of net assets. The top sectoral exposure was banking and finance, accounting for 37 per cent of net assets, followed by IT, with 20 per cent.

The top picks in the banking sector were SBI, ICICI Bank, HDFC Bank, Corporation Bank and UTI Bank. The exposure to modestly valued banking sector stocks, which have not participated in the rally in recent months augurs well. This could reduce the downside risk for investors.

Overall, the top picks were SBI, Infosys, HPCL, ICICI Bank and HDFC Bank. The top five stocks accounted for 38 per cent of net assets.

Performance: The fund has generated returns of about 54 per cent in the last year. This pales in comparison with the performance of many equity funds during this period. Over a longer period of three years, the fund has generated negative returns of about 5 per cent. This too is lower than that of many diversified equity funds. However, its performance since its launch of nearly 30 per cent per annum is attractive.

Besides, the relatively inferior performance of the fund last year is due to its large exposure to frontline banking stocks. This could, however, prove useful in limiting downside once the rally peters out.

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