The Hindu Business Line : HSBC India Opportunities Fund: Hold

Since this fund has the flexibility to shift across different market-cap ranges, investors in the fund may still reap the benefits of mid-cap investing.

With a compounded annual return of 46 per cent, HSBC India Opportunities Fund has made good use of its flexible investment mandate to deliver a significant out-performance of the BSE-500 (returns of 35 per cent), since its inception. The fund has bettered its benchmark and the category average for diversified equity funds, for a one-year period as well as the years since inception.

A significant allocation to large-cap stocks and focused exposures to sectors such as software and construction have paid off well for the fund and contributed to its out-performance. Investors in the fund can retain their holdings, as the performance till date inspires confidence. However, as the track record is restricted to a bull phase alone, fresh investments can be made after evaluating returns over a complete market cycle.

The fund's investment mandate makes it suitable to investors with a high-risk appetite. Despite a large-cap tilt, the fund tends to take focused exposures to the stocks and sectors it fancies. This could make for higher downside risks in the event of a market decline.

HSBC India Opportunities Fund is a diversified equity fund managed in a flexicap style, with the ability to invest across large, mid- and small-cap stocks.

The fund's mandate also allows it to take cash calls, that is, switch to cash/fixed return investments, based on its view on the markets. Over the past year, the portfolio has had a decidedly large-cap tilt, with 65-75 per cent of the assets allocated to large cap stocks. Given that large-cap stocks have led the rally from mid-June, this strategy has probably contributed positively to fund performance.

Going forward, with mid-cap stocks trading at a significant valuation discount to large caps, the former could outperform. However, since this fund has the flexibility to shift between different market cap ranges, investors in the fund may still reap the benefits of mid-cap investing.

The sector choices have also worked in the fund's favour in recent times. Software (20 per cent), cement (9.5 per cent) and construction (9 per cent) have been among the fund's overweight positions in recent months and each of these sectors have outpaced the broad markets. Over the past quarter, the fund has stepped up allocations to telecom services, cement and auto ancillaries while reducing weights in FMCGs and oil drilling. The individual stock choices have generally been restricted to frontline companies in each sector.

Fund facts: HSBC India Opportunities Fund was launched in February 2004. The fund manages about Rs 500 crore in assets and charges an entry load of 2.25 per cent. It is managed by Jitendra Sriram.

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