The Hindu Business Line : Reliance Regular Savings

Investors with a high risk appetite can consider investing in Reliance Regular Savings – Equity. With a one-year return of 22 per cent the fund is among the few equity schemes that have generated two-digit returns over the past year.

The fund recently completed a three-year track record of which a good two years were packed with volatile market phases. High churning, aggressive calls and tactical shifts across sectors have enabled the fund to retain its position among the top ten schemes in the diversified funds category over the last three years.

Suitability: Reliance RSF’s risk-return profile is not too different from most other funds from the AMC. However, a relatively nimble asset size (when compared to other equity schemes from the fund house) provides flexibility to make tactical calls. The fund’s aggressive stance does not, however, provide much assurance to contain downside risks.

Hence, Reliance RSF may not be suitable for investors with low risk appetite. The fund cannot also form part of a core portfolio. It can at best be added as a satellite fund that can enhance portfolio returns. For the above reason exposure to the fund is best restricted to small proportion. Further, as the fund does not provide a dividend option, investors can consider setting target returns and book profits on achieving the same.

Performance: Reliance RSF’s 22 per cent return over the last one year is 19 percentage points more than its benchmark BSE 100.

The fund’s peak performance between October 2007 and January 2008, when it earned a whopping 58 per cent over less than three months, was the main reason for superior returns over the past year.

Over a two-year period too, the fund has outperformed peers such as HDFC Equity and Birla Sunlife Equity by 10-14 percentage points. IDFC Premier Equity is among the notable peers that outperformed Reliance RSF with a more aggressive investment strategy and higher bias for mid-caps.

Reliance RSF has demonstrated its ability to nimbly time its exit and entry into sectors. It significantly reduced exposure to capital goods with the initial signs of correction in 2008. At the same time, exposure to currently defensive sectors such as pharma increased.

These strategies did not, however, provide cushion against declines as the fund continued to hold over 55 per cent of its assets in mid-caps (stocks with a market capitalisation of less than Rs 10,000 crore) on most occasions.

Investment strategy: Investors can consider a systematic transfer plan (STP) in a volatile market with a rising interest rate scenario. For one, the STP would enable parking money in debt funds that hold greater return potential on account of a high interest rate scenario. The systematic transfer would also help investors buy into equities and average costs in a volatile market. Consider Rs 10,000 invested in any of the liquid or short term funds from Reliance in January 2008 with an STP of Rs 1,000 per month to Reliance RSF from February 2008 for six months.

This combination would have returned -1 per cent. Instead if a lump sum had been invested in Reliance RSF in February the declines would have been -15 per cent. The debt component has clearly provided cushion on the downside.

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