The Hindu Business Line : Reliance Equity Opportunities: Hold

Unitholders can stay invested in Reliance Equity Opportunities Fund based on its performance over the past year. The four-year-old fund has, over a three-year period, generated a compounded annual return of 7.6 per cent, trailing its benchmark BSE-100, marginally.

The fund’s mandate is to invest in stocks across market capitalisations and in sectors with the inherent potential to grow along with the economy.

Being an ‘opportunities’ fund, Reliance Equity Opportunities invests at least 50 per cent of its assets in mid- and small-cap stocks.

The presence of such stocks in the portfolio warrants monitoring and periodic profit-booking to offset the risk associated with the investment. Hence, investors with a penchant for risk and an eye on higher returns can stay invested in the fund.

The higher returns generated by the systematic investment plan over one- and three-year periods, against that generated by a lumpsum investment, suggest that this may be a better way to ride out the heavy volatility in the fund’s NAV during the market correction.

Performance: The fund’s NAV appreciated by 83 per cent over the last year; it outpaced its benchmark BSE-100 by 15 percentage points. During the same period it scored 10 percentage points higher than its peers such as DSPBR Opportunities and Kotak Opportunities. During a market correction the fund failed to contain the losses better than its benchmark, because of the large number of mid- and small-cap stocks.

Portfolio Overview: The fund takes conservative bets on select sectors. For instance, during the market peak in January 2008, it had higher exposure to the pharma sector but, as the market started to correct, it has accumulated pharma stocks to its portfolio.

In the September 2009 portfolio, pharma accounted for close to one fifth of the assets. This indicates that Reliance Equity Opportunities has taken a defensive approach to handling corrections.

Banks and IT were the other two preferred sectors. The fund’s assets are distributed among 32 stocks and exposure to individual stocks is restricted to less than seven per cent of the assets. Reliance Equity Opportunities has broader exposure to sectors and the current portfolio covers 21sectors. The fund is not aggressive in churning the portfolio.

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