Which one is the best fund out of these?

Question

HDFC Prudence
Reliance Vision
Magnum Contra

Answer 1

Magnum is a little bit risky with the contrarian style. I might lean towards Reliance, or HDFC out of the ones that you have named. Best in general is hard to define. The best fund for you will be the one that best matches your risk tolerance and your time frame for investing.


HDFC:
WITH absolute returns of around 90 per cent over the past year, the HDFC Prudence Fund remains the top choice among the balanced funds available to the investor.

Its performance in 2003 reinforces the case for investing in a fund based on its track record across two or three market cycles. The NAV of the fund's Growth Plan has quadrupled since the end of 1998, and now stands at Rs 45.71 .

Suitability: Investors with an appetite for risk, who are looking to build equity exposures now, should consider routing their exposures through the HDFC Prudence Fund. Given the sharp run-up in equity market levels, any investment made now in an equity-oriented fund, is likely to carry a big dose of downside risk.

But as a balanced fund with a near-40 per cent exposure to debt or debt equivalents, the HDFC Prudence Fund may provide better downside protection than a pure equity fund, while allowing you to participate in any further appreciation in equity values.

Performance: With a 90 per cent return over the past one year, the fund outperformed the Crisil Balanced Fund Index, its benchmark, by a wide margin. Though only 60-65 per cent of the fund's assets are invested in equities, the fund has managed to outpace a good number of pure equity funds, both over the past one year and over a five-year time-frame.

HDFC Prudence Fund adopts a flexible asset allocation pattern; both its equity and debt exposures can swing between 40 and 60 per cent of its assets. But in practice, the fund has tended to stick with a particular asset allocation pattern for two to three years, based on its view of the equity and debt markets.

For the past couple of years, the fund has been allocating 60-65 per cent of its portfolio to equities and the rest to debt and money market instruments. In 2003, the fund appears to have periodically rebalanced its equity portfolio to keep equity in the 60-65 per cent range.

Between June and December 2003, despite the sharp appreciation in equity values and in the NAV, the equity exposure has actually fallen from 62.2 per cent to 60.6 per cent.



Reliance Vision:
An Indian fund, Reliance Vision, was the second best performing fund globally in the April-June quarter, according to Lipper Asia Ltd, which tracks approximately 80,000 funds worldwide.

The fund operated by Reliance Capital Asset Management Ltd gained 34.86 per cent last quarter, second only to Aberdeen Select Indonesian Equity Fund, managed by Aberdeen Asset Management Asia Ltd, which rose 34.95 per cent.

Magnum Contra:

A normal diversified equity fund is one that invests in the stocks of various companies in different sectors. Magnum Contra does the same thing.

However, as the name suggests, it will follow a contrarian view to investing and takes contrarian bets on stocks. This means the fund manager will deliberately bypass the popular stocks that everyone else is chasing. Instead, s/he will pick stocks that have the potential to appreciate (rise in price over time) but are undervalued and out of favour with other investors.

The fund manager will focus on stocks that have strong fundamentals but are trading at a significant discount to their intrinsic value. In layman's terms, this refers to a stock whose share price is, say, Rs 15 right now but has the potential to be Rs 100 over a period of time. Yet, it does not feature in the 'favourite list' of other stock pickers.

In other words, the fund managers of such funds will invest in companies that are out of fashion, yet sound. These will be stocks that are strong on fundamentals, but whose value is not yet recognised by the market. To put it very simply, it is like buying umbrellas in winter to sell them in the monsoon.

If the fund manager makes some good picks, the returns could be phenomenal.

The returns
Last year, Magnum Contra pulled off an exceptional return of 64.49% to emerge as the second hottest diversified equity fund.

As on September 5, 2005, this fund has raced ahead to deliver 56.45% since the beginning of the year. During this same period, other diversified equity funds have delivered an average of just 32.88%.

The popularity of Magnum Contra can also be gauged from its asset growth (the amount of money that investors have poured into it) in the last year. In June last year, the fund was managing Rs 22 crore of investor money. Today, investors have invested Rs 558 crore in this fund.