Mutual Funds

Magnum Equity Fund: Hold

Suresh Parthasarathy | Updated on December 10, 2011

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Investors can retain their units in Magnum Equity Fund. Although the fund's NAV declined by 12.8 per cent in the last one year, its long-term record remains reasonably good. It posted a compounded annual return of 7 per cent over a five-year period and comfortably outpaced its current benchmark S&P CNX Nifty by three percentage points.

Although the fund predominantly invested in large cap stocks, it still took limited exposure to the extent of 10-30 per cent of the assets in mid-cap stocks. However, when the fund switched its benchmark from BSE 100 to S&P CNX Nifty in April 2011, it decided to focus entirely on large-cap companies with market capitalisation of over Rs 10,000 crore.

The change in the fund's stock holding appears to have helped. Despite the current tough environment in the markets, the fund contained losses better than its benchmark in the last six-eight months. This is in contrast to the 2008 correction when it lost 4.5 percentatge points higher than the Nifty. However, it may be better to observe whether this performance is sustained during a market uptick as well, before committing any fresh investments.

Going forward, if the fund sticks to ultra large-cap stocks, the risk profile is likely to get moderated; so will the returns. The fund's present investment strategy will ideally suit conservative investors. Those invested in Magnum Equity for its strategy of investing small doses in mid-cap stocks may have to temper their return expectation. In earlier years, the fund rewarded its investors during short-term market spikes by distributing profits by way of dividend, but with the current large-cap bias, the volatility of the fund is likely to come down. This may well change the dividend distribution pattern.

Performance: Over a three-year period, Magnum Equity clocked annualised return of 27.5 per cent, five percentage points higher than the Nifty. Over the same period, another large-cap fund, Franklin India Bluechip, managed to deliver slightly better returns of 29 per cent.

Magnum Equity's losses were three percentage points lower than the Nifty in the last one year. The fund managed to contain the losses despite interest-sensitive sectors such as financials and auto (some of which took a beating in 2011) accounting for 35 per cent of its portfolio. The fund has a cautious stand on the energy sector and its weight to the sector is far lower than its benchmark.

Portfolio Overview: In the month of October, the fund held 30 stocks in its portfolio. The top ten stocks accounted for 48 per cent of assets.

The fund's assets are concentrated in financials, auto and consumer goods. These sectors together accounted for 50 per cent of the assets. In the past few months the fund has increased its exposure to auto and consumer goods.

Despite a dip in its NAV by 12.8 per cent in the past year, the value of assets under management remains mostly unchanged. This implies that the fund managed to receive good inflows into the scheme. The fund is managed by Mr R Srinivasan.

Published on December 10, 2011

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