Principal Large Cap: Invest

Investors can buy units of Principal Large Cap Fund, given its track record of consistently beating its benchmark.

The fund, over three- and five-year periods, clocked 18 per cent and 8 per cent return, respectively, and outpaced its benchmark BSE 100 by six and three percentage points.

True to its large-cap characteristic, Principal Large Cap managed to contain volatility well during the market corrections in 2011.

Over a one-year period, the fund lost 8 per cent and marginally contained losses better than its benchmark, but still underperformed its peer Franklin India Bluechip by four percentage points.

In terms of risk-return ratio, this fund does not score over large-cap funds such as Franklin India Bluechip and Birla Sun Life Front Line Equity.

The latter have fared better than Principal Large Cap with lower risk. The risk of Principal Large Cap stems from its limited exposure to mid-cap stocks.

What is important is that the fund managed this without moving into cash. Such a strategy helped the fund make the best of the market recovery in 2009. It delivered 25 percentage points higher than its benchmark that year.

If the market continues to correct, funds that are fully invested in equities may suffer in the medium term. Hence, investors need to have a long-term view to invest in Principal Large Cap Fund.

The fund predominantly adopts a buy and hold strategy. Its portfolio has not so far underdone much change even when there was a shuffle in fund management.

This suggests that it may have a process-driven stock selection approach.

Although the market witnessed huge volatility in the past five years, the fund NAV did not swing too much.

These factors make the fund suitable for conservative investors anticipating steady returns over the long run. Principal Large Cap may be used as a diversifier in their portfolio.

Portfolio strategy : The fund has a well-diversified portfolio, but its top ten stocks make up for 45 per cent of the assets.

But exposure to individual stocks is restricted to less than 5 per cent.

Over the past two years, the fund's sector allocation was stable.

Despite sector holdings such as banks and pharma losing steam in the past one year, the fund continues to maintain the same asset allocation.

The banking sector was one of the top underperformers in the past one year and this has impacted the fund's short-term return.

But as many as 20 schemes in the equity universe hold over 20 per cent in the banking sector and Principal Large Cap is no exception.

The fund took high exposure to FMCG during the early part of 2009 rally, but reduced holding over the years, thus marginally impacting returns.

The fund is now managed by Mr Anupam Tiwari.