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Betting on safe large-cap names may be a good idea in choppy markets.
L&T Equity, which invests predominantly in bluechip stocks, with mild exposure to quality mid-caps, has delivered quite well over the long term. Investors can consider buying units of the fund through the systematic route.
Over one-, three- and five-year time frames, the fund has outperformed its benchmark, the BSE 200, by 3-5 percentage points over the long term. The scheme has delivered a healthy 14.6 per cent returns over the past five years. It has generally been in the top quartile of funds in its category and ahead of peers such as SBI Magnum Equity, Principal Large Cap and Canara Robeco Large Cap+.
L&T Equity has been able to tap the right segments across market cycles, without taking heavy concentrated exposures, and has consistently outperformed.
The mid-cap exposure ensures participation in broader market rallies even as the fund maintains a less risky, mainly large-cap, portfolio.
The fund is suitable for investors with a moderate risk appetite and looking for steady above-average returns over five-seven years.
Portfolio and strategy L&T Equity invests in mid-cap stocks (less than ₹10,000-crore market capitalisation) only to the extent of 10-15 per cent of its portfolio.
The core of its portfolio comprises stocks from the Nifty and BSE 100 baskets. Infosys, HDFC Bank, L&T, Shree Cement and Tech Mahindra figure among its prominent holdings.
The large-cap exposure, together with calls to hold 6-7 per cent in cash and debt during volatile markets, reduces the risk profile significantly.
The fund has churned its portfolio well to move from defensives to cyclicals over the past year. It thus reduced exposure to consumer non-durables and software and increased weightage accorded to banks, cement, autos and auto ancillaries.
These moves ensured that it participated in the rally over the past year quite well. Even during earlier rallies in 2012 and 2009-10, L&T Equity managed to deliver well.
The scheme maintains 55-60 stocks in its portfolio. Exposure to individual stocks is generally less than 5 per cent, barring one or two cases. This diffused exposure, while ensuring sufficient diversification, helps contain the downsides.
Despite maintaining a lower-risk portfolio, its ability to deliver top-quartile performance makes L&T Equity a worthy addition to investors’ portfolios. A longer horizon of investment is required to get the maximum out of the fund.
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