Monday, January 2, 2012

Which Large cap for sip investment??

    A client is confused as to which Large cap he should go for……

Mr.Vijay Sampath wrote :
“Hello Sir, I like your blog for its easy language. Sir, I want to invest in an Large Cap Fund through Sip.
I have zeroed in on Kotak Opportunities Fund and IDFC Imperial Equity Fund, which one would you suggest?”. 

Hi Vijay,
It is good that you have decided to take the sip to investing which is the BEST way to invest as it helps in averaging your costs and help in accumulating corpus with even small sums every month. 

“Opportunity Funds”, as the name suggests are flexible and try to benefit from attractive opportunites that the market keeps throwing up every now and then. 
Kotak Opportunities Fund relies on combining top-down and bottom-up approaches. Kotak Opportunities Fund is an aggressive diversified scheme which invests a minimum of 60% of its corpus in large cap stocks and remaining in mid-cap stocks.

Kotak Opportunities Fund actively mixes up its portfolio and appears to book profits as and when the opportunity arises. Given this active portfolio management combined with a strategy to actively shift across sector and market caps, the fund would be more suitable for aggressive investors. It should not be the only fund in your portfolio, but rather an addition to perk up returns. 

Now, coming to whether Kotak Opportunities Fund is better or IDFC Premier Equity Fund…………………
Actually the comparision itself is wrong as Kotak Opportunities Fund is more concentrated towards Large caps whereas IDFC Premier Equity Fund is more of a Mid and small cap play.
Kotak has almost 60% in Large Cap whereas IDFC Premier Equity fund has only 6% in Large caps.
It would be more acceptable when Kotak Opportunities fund is compared with IDFC Imperial Equity Fund, which has a high concentration of Large caps.  

Now look at the comparison and take a decision. 

Kotak Opportunities Fund has scored over the IDFC Imperial Equity Fund over 3 year period giving 17.83% v/s 15.22% and both have given similar returns over 5 year period.
On Expenses Front, IDFC Imperial Equity Fund has an expense ratio of 2.29% whereas Kotak Opportunities has a lower expense at 2.05%
Cyclical Holdings :
Here too, Kotak Opportunities Fund scores over IDFC Imperial Equity Fund because Kotak has a lesser %age of cyclical stocks at 43% whereas IDFC  has a rather uneasy 64%…

Cash :
Kotak tends to have a cash holding ranging between 6% to 8% whereas at IDFC the cash holding has always been on the higher side at 15% to 20%. I personally feel that the falling markets has helped IDFC because it tends to have a larger portion in Cash…but going forward this could turn against the Fund.
However, on the risk taken to generate returns IDFC scores over Kotak. 
Even if we compare Kotak Opportunities Fund with IDFC Premier Equity fund, during the last 3 year period, IDFC Permier  Equity returned an annualized 7.58% while Kotak Opportunities delivered 7.60%. Both funds beat the benchmark BSE 100 index (return: 3.75% annualized) comprehensively over the same timeframe.

Calendar Year
The performance figures in the table above are calculated using NAV, assuming Growth option. Performance figures of over 1 year are annualised.(Eg. A 33.1% gain in 3 years works out to a 10% gain per year when annualised.)    
3 yr Annualised Volatility
3 yr Sharpe ratio


I certainly feel that Kotak Opportunity Fund can add significant value to your portfolio over the long term especially via SIPs. 
Note : I have given the comparison only for the two funds you have specifically asked about, this is not to say that Kotak Opportunities Fund is the BEST Large cap. For the answer to that, keep visiting my blog. 
Srikanth Matrubai

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