The market is on a roll with mid and small-cap stocks leading the charge. The sharp rally has raised doubts in some quarters as to whether the market, especially the non-large caps, is overheated. That said, if the rally continues, the smaller stocks may continue doing quite well. But if you are looking to add mid-caps to your portfolio, direct exposure to such stocks may be risky at this juncture. Investing through seasoned mid-cap funds that have navigated such waters before seems a better option. Franklin Prima is among the best funds in this category.

The fund’s winning consistency is top-notch. Its annual return on a daily rolling return basis is better than that of both its benchmarks, Nifty 500 and Nifty Free Float Midcap 100, almost always in the past five years. It has been an outperformer during market rallies and declines, participating strongly in rallies and containing downsides.

Since August 2013, when the bull market began, the fund has nearly tripled, placing it way ahead of the benchmarks; it also slipped lesser during the dip between January 2015 and February 2016.

Among peers too in the mid-cap category, Franklin Prima ranks is in the top quartiles; it scores better than HDFC Mid-Cap Opportunities, Axis Midcap and ICICI Pru Midcap over five years.

The mid-cap space is inherently a risky one, with stocks often flattering to deceive.

Focus on quality

That Franklin Prima has been able to avoid major pitfalls over the past many years attests to its stock-picking prowess. A focus on quality has held the fund in good stead. Almost all the stocks in its portfolio are known names; this limits downsides when the going in the market gets tough.

Also, a buy-and-hold strategy, reflected in its low portfolio turnover, has helped the fund reap rich harvests over the long term. For instance, stocks such as PI Industries and TVS Motor Company have been multi-baggers over three to five years.

The ability to cut losses, for instance, in stocks such as Adhunik Metaliks and JSPL, has also helped performance.

So have timely sector shifts. For instance, over the past year, the fund has cut exposure to the underperforming software and pharma sectors while upping stakes in private banks and refineries.

Franklin India Prima has both value and growth stocks in its portfolio. It invests in growth stocks even if they don’t come cheap; its largest holdings currently are YES Bank and Equitas Holdings. A large portfolio with close to 60 stocks helps reduce risks; exposure to individual stocks rarely exceeds 5 per cent of the portfolio.

While the chunk (half to two-third) of its portfolio is in mid-cap stocks, the fund also takes exposure to large-cap stocks that reduce risk; it has a few small-caps too. Between 90-95 per cent of the portfolio is invested in equities, with the rest held in cash.

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