he year 2004 was volatile for the equity market.

It began with diversified equity funds (funds that invest in stocks of different company of different sectors) on shaky ground, but ended with a bang.

The average return of funds in this category was 26.32% for 2004.

With this in mind, let's see which funds created history and how they managed the ups and downs of the stock market last year.

Magnum Global
Return in 2004: 68.35%
NAV on February 11: 16.99

Magnum Global made the most out of 2004.

In the first quarter, when equity markets were on their way down, the fund kept a check on the loss. In the second quarter, when diversified funds were down over 7%, the fund managed a positive return of 0.46% and continued its good show till the end of the year to top the returns chart.

Though the fund has topped the performance chart in 2004, its past performance is discouraging-from 2000 to 2003. It has always underperformed the category average and needs to prove itself for more time.

Magnum Contra
Return in 2004: 64.26%
NAV on February 11: 15.5

The same fund manager (Sandip Sabharwal) as Magnum Global and virtually the same result.

Sabharwal manages Magnum Contra in a relatively aggressive fashion. He does not hesitate to take high exposure to any particular stock or sector if he is convinced about it. For example, the allocation to Gujarat Ambuja Cements [Get Quote] touched 9.51% of total assets in August this year.

This fund has a good track record. A 25.80% return since its launch in July 1999, and an orientation towards large-cap stocks make it a better choice for long-term investors.

Alliance Buy India
Return in 2004: 51.76%
NAV on February 11: 13.42

Under the hammer in the first quarter of 2004, this fund has staged a strong comeback as one of the top five performing funds of the year.

However, the road to success was bumpy, at least during the first few months of last year when the stock market was on its way down after peaking in January. The fund plunged in January and lost 8.27% against the category average return of negative 3.86%.

It pulled itself up in February, but dived again in March to end the first quarter down over 10%, against the 4.06% loss of average peers.

A mid-and small-cap heavy portfolio proved disastrous for the fund. In fact, large caps were completely out from the portfolio in February and March, while the fund had 8% exposure to them in January.

Last year, the fund banked heavily on the health sector to generate healthy returns. In September, the exposure to the sector touched a whopping 41.89% of the portfolio. Given its small size, the fund bets aggressively on individual stocks with its top five holdings, often crossing the 50% mark.

This is a risky proposition, as the strategy reduces the scope for diversity.

Historically, the fund has nothing to boast about except for its show in 2004. Since its launch in January 2000, the fund has returned just 5.93%. In the volatile periods of 2001, the fund lost less than the average but followed it up with a poor show in 2002 and 2003.

HDFC [Get Quote] Capital Builder
Return in 2004: 47.55%
NAV on February 11: 36.093

Gaining in a booming market is important but guarding the returns when the markets tank is crucial.

This fund has done exactly this. It steadily made its way to the top in 2004 without taking much risk.

Historically, the fund has a decent track record. Barring 2001, it has always managed a place in the top half of the category. The fund did extremely well in 2000, when diversified funds posted a negative return of 24.82%.

It lost 17.17% and was ranked seventh in the category.

An annualised return of more than 11% since launch in 1994 and a well-diversified portfolio makes the fund an attractive choice.

Alliance Equity
Return in 2004: 43.99%
NAV on February 11: 81.36

This fund has put up a consistent show throughout 2004. Performance-wise, it has not done anything extraordinary, but the fund guarded its returns in bad times and gained a bit more than its average peers when equity markets rallied.

At the stock level, the fund does not hesitate to bet high on individual stocks. Throughout 2004, the top five holdings of the fund accounted for more than 33% of assets of the fund.

Historically, the fund has a decent long-term performance record. Barring 2001 and 2002, it has managed the equity markets very well and delivered a whopping 37.92% return since its launch in August 1998.

Value Research is mutual fund research outfit.

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