Mutual Fund - DSP ML Equity Fund : Analysis

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With the Sensex declining sharply in value over the past two weeks and mid and small-cap indices registering even sharper reversals, this is probably a good time for investors to take exposures to the equity markets through the fund route.

A strong pedigree and track record across market cycles, ability to weather short-term market reversals and the flexibility to invest in both large and mid-cap stocks may be key attributes to look for in a diversified equity fund, under current circumstances. The DSP ML Equity Fund is a diversified fund that fits the bill well, on all these parameters.

One, launched in April 1997, DSP ML Equity has over a ten-year track record of beating its benchmarks through various market cycles. The fund is among a handful in the diversified category to manage a top quartile performance, over one-, three-, five- as well as 10-year time frame. The fund has also stayed well ahead of the category average over each of these periods.

Two, the fund's return generation has also been fairly consistent over the past five years. It has figured within the top quartile in return rankings in each of the five years. Further, it has managed to contain the erosion in its NAV to levels less than the broad markets in several of the recent corrective episodes. Whether it was the short corrective episodes in October and August 2007 or the more severe one in May 2006, the NAV of the DSP ML Equity Fund has declined less than the Sensex on each occasion.

Three, in terms of portfolio strategy, the fund invests in a mix of mid and large-cap stocks. This may make it a good option for an investor who does not wish to actively manage his MF portfolio between those oriented towards large-caps and those funds with a mid-cap bias. Over the past year, about 40-45 per cent of the assets of DSP ML Equity Fund have been consistently invested in mid-cap stocks (market capitalisation of Rs 7,500 crore or less).

Performance and strategy: The fund has managed a return of about 35 per cent over the past year, and has managed a five-year compounded annual return of about 56 per cent. It spreads its fairly large asset base of Rs 1,400 crore over 70-80 stocks, with the top holdings accounting for less than 5 per cent of the assets. The relatively small exposure to individual stocks and the mix between mid and large-caps probably helps the fund reduce the impact costs associated with taking exposure to its smaller picks.

The top portfolio holdings as of end December suggested a large-cap bias with a mix between value and growth stocks — stocks such as ONGC, Tata Chemicals, Reliance Inds, IOC and Tata Power were the key exposures. The fund's sector exposures were quite offbeat with refineries, fertilisers and banks taking up the top sector preferences. However, exposures were restricted to the quality stocks in these spaces, though much of the recent action has been in smaller momentum stocks.

Fund facts: Launched in April 1997, DSP ML Equity Fund is managed by Apoorva Shah. The entry load is 2.25 per cent for investments up to Rs 5 crore.