The Hindu Business Line : Chola Midcap: Hold

INVESTORS can stay with Chola Midcap. The fund, launched last August, has delivered an impressive performance on the back of the strong rally in mid-cap stocks.

The fund invests in stocks with a market capitalisation of Rs 300-3,000 crore.

Chola Midcap has a small asset base relative to its peers. This makes it well placed, compared to mid-cap funds such as Franklin Prima, to invest in small-cap stocks, which although inherently riskier, have the potential to boost returns.

Franklin Prima, however, has a sound long-term track record and should, therefore, rank higher in your preferences when you choose to invest in a mid-cap fund. Mid-cap funds are also more suitable for those with a higher risk appetite.

The ability of Chola Midcap to weather the ups and downs of the equity market would have to be evaluated over a longer time-frame — say, three to five years.

The fund may form a small part of your overall portfolio for now.

Performance: Over the past year, the fund has turned in a return of over 80 per cent. This compares well with the performance of funds such as Prima and Sundaram Midcap. The performance also outpaces that of the recently introduced CNX Midcap index, which has delivered a return of 68 per cent since the fund's launch.

An aggressive stock selection strategy appears to have worked in its favour. Its top holding, Pantaloon Retail, has quadrupled over the past year. Bajaj Hindusthan, Crompton Greaves, United Phosphorous and Voltas delivered attractive returns over the year.

Portfolio overview: The portfolio is well diversified with the capital goods and software sectors figuring in the top holdings. There are about 35 stocks in the portfolio, and exposure in any single one does not exceed 5-6 per cent.

The fund does not stick too strictly to the mandate of investing in stocks with a market cap of less than Rs 3,000 crore. About 15 per cent is invested in stocks that have a market cap of more than Rs 3,000 crore. This could however, be merely because of the appreciation witnessed in mid-cap stocks.

For instance, Pantaloon Retail, which fit the fund's criteria of a mid-cap stock last year, now has a market-cap of more than Rs 3,000 crore.

The fund does appear to have pared exposure to the stock, but has exited it. Other large-cap stocks that figure in the portfolio include Dabur, Nicholas Piramal and Aventis Pharma.

About 40 per cent of its assets are invested in stocks outside this benchmark index — for instance, Blue Dart Express, Geometric Software, Geodesic Information, Tata Metaliks and Automotive Axles.

Fund facts: Chola Midcap was launched in August 2004. The fund has an asset base of Rs 55 crore. The minimum investment amount is Rs 5,000. Dividend and growth options are available.

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