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Sunday, Mar 31, 2002

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IDBI Principal Growth Fund: Hold

Aarati Krishnan

INVESTORS in the IDBI Principal Growth Fund can stay with the fund for now. In the one-and-a-half years since launch, the fund has been a moderate, but not impressive, performer. It has done better than the S&P CNX Nifty, losing 2.7 per cent in value since launch, against the Nifty's value erosion of over 5 per cent. But it has underperformed quite a few of its peers over this period, including the IDBI Principal Equity Fund.

The rally in equities in the first quarter of 2002 also helped the fund, its NAV appreciating around 15 per cent since the beginning of the year. Since the scheme is in its early days yet, investors in it may stay on. Fresh investments may not be contemplated due to the lack of a long enough track record.

Suitability: Given its moderate performance and relatively short track record, the IDBI Principal Growth Fund is not the best of funds to make up the core of an investor's portfolio. Investors for whom this is the sole mutual fund investment may consider switching to a diversified equity fund, which has at least a three-year track record of good performance.

Performance: After just about keeping pace with the narrow market index (S&P CNX Nifty) until the end of 2001, the fund has run substantially ahead in the first quarter of 2002. Between December 31 and March 27, the NAV appreciated by 15 per cent, putting it well ahead of the S&P CNX Nifty, which registered a 6 per cent appreciation.

The difference appears to lie in the portfolio composition of the two funds. While the IDBI Principal Growth Fund has favoured a high weightage to FMCG stocks, the Equity Fund had its exposures spread more evenly across FMCG, PSU and auto stocks, which have run up in the recent times.

Portfolio: By end of February, FMCG stocks, which accounted for around 24 per cent of the fund's assets, remained the largest sectoral exposure. ITC, HLL, Godrej Consumer and SmithKline Beecham Consumer made up the core of the FMCG exposures in the fund.

Under normal circumstances, the high weightage to FMCG stocks, which hold scope for consistent but no more than sedate returns, would limit the upside potential.

But the fairly sharp run-up in cyclicals over the past few months and the initial signs of a revival in demand for FMCG products, make the fund a good defensive investment candidate at this juncture.

Fund facts: The IDBI Principal Growth Fund is an open-end diversified equity fund launched in October 2000, after Principal group acquired management control in IDBI Mutual fund.

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