The Hindu Business Line : ICICI Prudential Dynamic Plan: Hold

Investors can retain their exposures in ICICI Pru Dynamic Plan, given the fund’s reasonable track record within the universe of diversified equity funds. It has delivered a 61 per cent annualised return over three years against a 42 per cent return on the Nifty.

The fund has also outperformed its benchmark (the Nifty) as well as the category average over a one as well as three-year time frame. These returns have to be seen in light of its significant cash/debt position. This is in keeping with the fund’s objectives of moderating its equity exposures if it believes the markets are over-valued.

Suitability: The fund’s flexicap mandate allows investors to benefit from stock price performance across large, mid and small-cap stocks. Given the fund’s objective of switching into cash to protect against downside ri sks, the fund would theoretically carry lower risks than the normal equity fund. However, in practice, this objective may result in the fund’s underperforming fully-invested peers.

Switching between cash and equities is a difficult call to make and demands a keen sense of timing on the part of the fund manager. A move into cash can also backfire and reduce relative returns for investors, if stock prices continue to rise despite high valuations.

Performance: The fund has outperformed its benchmark as well as the diversified equity category average over one and three-year time frames, and since its inception. This performance is in spite of the fund consistently allocating a si gnificant proportion of its portfolio to cash and debt equivalents. The fund’s equity portfolio has adhered to the flexicap mandate, featuring a mix of large and mid-cap stocks. The latest portfolio carried a distinct large-cap bias with only 20 per cent allocated to stocks with a sub-Rs 5,000-crore market cap.

Though the fund has the mandate to shift up to 100 per cent of its assets to cash, based on its perception of market valuations, in practice, the fund has capped its cash holdings to the 15-25 per cent range. The fund has not always been right in switching between equity and cash either. For instance, it had a fairly high equity exposure of over 90 per cent in end April 2006, just prior to the May/June crash.

On the other hand, the equity allocation by end-June (after the sharp fall in the markets) was at 86 per cent, lower than the preceding month. In the recent months, again, the fund has moved a larger proportion of its assets into cash/debt in April 2007 (probably wary of stretched valuations).

But with the markets continuing their upward journey, this has probably resulted in the fund missing out on some of the upside over this period. Allocations to cash/debt, which were at nearly 25 per cent of the portfolio in April 2007, have declined to about 15 per cent of assets by end June.

Fund facts: The fund, an open end diversified equity fund, was launched in October 2002. The NAV is Rs 71.90.

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