The Hindu Business Line : Tata Select Equity: Invest

Tata Select Equity is a good option for investors looking for an exposure in basic industries such as capital goods, engineering, automobile and petrochemicals. With a return of 67 per cent over the past year, it continues to enjoy a slot among the top 25 diversified funds in terms of returns.

Suitability: Tata Select Equity has stuck to its mandate of investing in old economy sectors. Although thematic, the scheme appears more diversified than other sector or theme funds, thus reducing the risks that typically accompany such funds.

Concentrated exposure to some sectors, however, places it in a higher risk category than other diversified funds. The fund is, therefore, more suitable for investors specifically looking for higher exposure to these basic sectors rather than mere diversification.

Consequently, the fund also requires a more active investment approach. Systematic investment plans (SIP), each with a six-monthly duration, can be considered. Based on the fund's performance and the prospects of the sector in which it is heavy, the SIP can be renewed.

While an SIP typically calls for an investment of two to three years to reap the benefit of rupee-cost averaging, it would be prudent to renew SIPs on theme funds based on the potential of the sectors. An SIP in the fund over the past five years would have returned 52 per cent, against 47 per cent made through a lump-sum investment.

Performance: Tata Select Equity's three- and five-year returns comfortably outpaced its benchmark Sensex. It, however, just marginally beat its benchmark over the past year.

This may be a result of the relatively narrow rally (in select universe of stocks) seen after the correction in May. Over a one-year period the fund has outperformed peers such as Birla Sun life Basic Industries and JM Basic. The fund's more focused peer, DSPML T.I.G.E.R, has also returned similarly. However, given the latter's less-than-three-year track record, Tata Select Equity appears to be a superior option for fresh investments now.

Tata Select Equity appears to be mid-way in terms of exposure to sectors. While Birla Sun Life Basic is more diversified through exposure to sectors as banks and finance, JM Basic is highly concentrated, with over 60 per cent exposure to engineering. Tata Select Equity's holding in capital goods/engineering is in the 24-28 per cent range on most occasions, with telecom services taking the second slot.

Sectors such as financial services and FMCG do not find a place in the portfolio. The fund's ability to stick to its mandate and at the same time remain more diversified than other theme funds may be the key to distinguish itself from diversified as well as concentrated funds.

Over 65 per cent the stocks have been in the portfolio for more than a year. ABB, Bharat Heavy Electricals and Bharti Airtel are some of the stocks in the above category. The top ten holdings account for 40 per cent of the assets.

Fund facts: Tata Select Equity was launched in 1996. It has a compact asset base of Rs 92 crore and is managed by Mr M Venugopal. The NAV per unit is Rs.46.2

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