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Suresh Krishnamurthy

INVESTORS in Sundaram Growth can retain their holdings. Since its launch, the fund's returns have not been as spectacular as other funds. It has, however, beaten the index consistently and aims to straddle the middle section of the list in terms of rankings based on returns.

The fund has generated capital appreciation for its investors and its steady performance is its attractive feature. But investors need not enhance exposure to it now.

Sundaram Growth follows a policy of holding a diversified basket of stocks. This policy manifests in the form of restricted exposure to stocks at about 5 per cent of the net assets of the fund. Generally, this diversified approach is expected to reduce risks.

In terms of performance, this should mean that the fund underperforms peers and falls less when the market tanks. In practice, however, Sundaram Growth's performance has not matched such expectations.

The correlation with the market performance and peers even in a downtrend has been higher. The overall returns, however, have been reasonable and are commensurate with the risks involved.

Portfolio allocation: At the end of May 2004, the fund had about 20 per cent in cash and equivalents, up from about 6 per cent at the end of April 2004. The move into cash may have been triggered by expected redemption pressure. This, however, would have helped the fund's performance as markets dithered during May and since then.

Given the fund's smallish size, deploying the cash quickly in the market may also not pose a major problem when necessary. A strategy of moving into cash in anticipation of a decline in stock prices is frowned upon by purists. The mutual fund itself is unlikely to resort to such a market timing strategy. The fund has concentrated exposures in three sectors — IT consulting, banks and automobiles. These three sectors account for about 38 per cent of net assets.

Performance: The fund has generated annual returns of about 18 per cent since launch in April 1997 compared to returns of about 8 per cent for BSE 200. In the past 12 months, the fund has generated returns of about 65.8 per cent compared to 50.6 per cent for BSE 200.

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