The Hindu Business Line : DSPML Equity Fund: Invest

If you’re looking for equity funds to add to your core portfolio for the long term, DSPML Equity Fund is an attractive option to consider. The fund remains one of the top performers in the diversified equity category over five, three and one-year time frames. A good performance in the bull market and relatively lower downside in the recent market fall have retained the fund’s five-year annualised returns at 25 per cent. This is well ahead of the Nifty returns of 11 per cent and BSE 500 returns of 12 per cent over the same period. The sharp correction in stock prices makes this a reasonable time to consider lumpsum as well as systematic investments in equity funds.

Though further erosion in capital over the next one year cannot be ruled out as the markets remain in the grip of unprecedented volatility, investments made now are likely to deliver attractive returns over a five year-plus time frame. Those considering lumpsum investments are advised to invest in two or three instalments, to avoid over-exposure to one particular index level.

Portfolio: As a fund with a flexicap mandate, the DSPML Equity Fund carries a sizeable number of mid and small cap stocks in its portfolio. While most of the funds in the diversified category have adopted a large-cap tilt in the past six months, DSP ML Equity retains a sizeable mid cap exposure in its portfolio. As of September 2008, roughly 39 per cent of the fund’s portfolio was invested in stocks with a market capitalisation of Rs 7,500 crore or less.

Given that mid-cap stocks and mid-sized companies could be more vulnerable to macro economic risks in the near term, the higher mid-cap exposure could contribute to greater volatility of returns. However, the fund has so far managed these risks well, by avoiding concentrated exposures and balancing out the mid and small cap exposures with a significant cash position and investments in derivatives.

Performance: The market rout so far this year has substantially trimmed both the -year and five-year returns for equity funds. DSPML Equity Fund is no exception. However, the fund’s compounded annual returns of 25 per cent over five years and 11 per cent over three years, places it among the top performing funds in the category over this period. That compares to 12 per cent and 3 per cent, respectively, for a broad-based index such as the BSE 500.

The fund has also contained the erosion in its NAV relatively better than its peers over the past year. The fund’s one-year decline of 41 per cent and year-to-date decline of 53 per cent are both lower than declines in the market (negative 53 per cent and negative 58 per cent).

Apart from holding a sizeable cash position, the fund has also opted for a fairly fragmented portfolio structure. The September portfolio featured over 70 stocks, with representation from 25 sectors. Pharma, the top sector exposure, accounted for less than 10 per cent of assets.

The extremely diversified approach has probably aided the fund in containing downside risks well in the volatile markets. BPCL, Tata Steel and Wipro were key additions to the portfolio in September, while the fund exited stocks such as HDFC, Ranbaxy and Tata Motors.

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