Mutual Funds

Principal Large Cap Fund: Invest

K. Venkatasubramanian | Updated on April 14, 2011

iw10 principal large redesigned spot1_new [Converted].eps

Investors can buy units of Principal Large Cap Fund, given its track record of delivering steady returns over the long term. Over one-, three- and five-year time frames, the fund has consistently beaten the returns of its benchmark BSE-100.

As the name suggests, the fund invests predominantly in large-cap stocks (greater than Rs 7,500 crore market capitalisation). Principal Large Cap also takes exposure to mid-cap stocks, though this is usually restricted to about 10 percent of the portfolio.

Given the broader market volatility, a large-cap focus may serve the interests of conservative investors well.

Over a five-year period, the fund has delivered a compounded annual return of 14.2 per cent, which places it among the top quartile of diversified equity funds in the performance chart. Even the fund's three-year returns feature in this performance zone.

Principal Large Cap manages to contain downsides during periods of market falls (15-60 per cent), such as those witnessed in May-June 2006, early 2007 and in a more pronounced way in 2008-09. Even in the recent correction over the last 3-4 months, the fund's NAV has fallen less than the BSE-100.

What is also attractive is the fact that the fund ensures reasonably sound participation during periods of market upswing, as seen during the bull run of 2007 and the protracted rally of 2009-10.

These traits make the fund suitable for conservative investors looking for steady returns over the long run. Principal Large Cap may be used as a diversifier in a low-risk investor's portfolio. The systematic investment (SIP) route too may be taken to buy units of the fund.

Portfolio and strategy: Principal Large Cap takes a relatively stable approach to investments in its portfolio. Sectors such as banks, software, pharma and petroleum products have figured as the top sectors held for the last 2-3 years. When the markets were in turmoil in 2008 and early 2009, the fund also increased exposure to consumer non-durables to make the portfolio more resilient and defensive against the market freefall.

The fund was helped by the fact that these sectors had a spectacular run from the market lows in the rally that ensued. In the 2007 rally, increased exposure to capital goods stocks helped.

The fund has remained nearly fully invested in equity even during the worst market conditions. This ensured easy participation in any subsequent rallies.

Principal Large Cap churns its portfolio in a limited way; it exited only nine stocks from its portfolio of over 40 stocksin the last year. It has increased the number of stocks in its portfolio whenever there are corrections in the market.

Exposure to individual stocks, barring a couple of them, is restricted to less than five per cent. This reduces the risk-profile of Principal Large Cap significantly.

Stocks such as Infosys Technologies, Reliance Industries and, less conventionally, Bajaj Holdings & Investments, Oracle Financial Services and Godrej Consumer Products, have featured in the portfolio for the past two years.

Published on April 09, 2011

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor