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Birla Sun Life Mutual Fund recently launched a new fund offer -- Birla Pure Value Fund. This is among several NFOs launched by the fund house over the last few years. To that end, now is a good time to review one of its earlier NFOs -- Birla Top 100 Fund to understand whether it has added value to investors' portfolios.
Birla Top 100 Fund, launched in October 2005, is a predominantly large cap fund that invests in the leading 100 companies by market capitalisation. Large caps boast of established track records; over longer time frames, their performances display a degree of stability. Investors are exposed to fewer surprises, which lowers the risk of investing in them considerably as compared to say mid caps or small caps which in many ways are still evolving.
Read what we said about Birla Top 100 Fund at the time of the NFO
At the time of the NFO, we had expressed reservations about the NFO mainly on two counts. Our first concern was that by investing predominantly in large caps (at least 65% of assets) the NFO bore a striking resemblance to Birla Advantage Fund (BAF), which at that time was also predominantly invested in large caps. Over the years, after undergoing several changes, BAF is now positioned as a flexi cap fund (i.e. it can invest across large caps, mid caps and small caps).
Investors may want to know how a predominantly large cap fund like Birla Top 100 can resemble a flexi cap like BAF. To answer this question we looked at both their portfolios closely over several time frames so as to identify the common stocks. Not surprisingly, there were several stocks common to both portfolios.
The January 31, 2008 portfolios of both funds reveal that the number of stocks common to both the funds is 20 in number. In terms of assets, these stocks account for over 41 per cent of Birla Top 100's assets. Put simply, these two funds have investments that are identical to the extent of 41 per cent (of Birla Top 100's assets). This was a concern at the time of the NFO launch and the relatively identical portfolios of both the funds at present means that it is still a concern.
The other reservation was about whether the fund would be able to outperform its more established peers. It is clear that the fund has some way to go before it can merit inclusion in the investor's portfolio ahead of its peers. Compared to peers with established track records (in the predominantly large cap segment) Birla Top 100 lags on most parameters. While we prefer to evaluate equity related investments over at least 3-5 years, it must be said that Birla Top 100's performance so far is far from inspiring.
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How Birla Top 100 fares vis-a-vis its peers
| NAV (Rs) | 3-Mth (%) | 6-Mth (%) | 1-Yr (%) | Since Incep. (%) | Std. Dev. (%) | Sharpe Ratio (%) | |
| Sundaram Select Focus (G) | 85.95 | -13.8 | 25.2 | 49.7 | 47.1 | 10.36 | 0.23 |
| HSBC Equity (G) | 98.39 | -8.3 | 23.0 | 45.6 | 54.5 | 8.85 | 0.23 |
| DSP ML Top 100 Equity (G) | 77.40 | -11.2 | 15.8 | 40.0 | 52.4 | 8.96 | 0.23 |
| Reliance [Get Quote] Vision (G) | 240.47 | -9.1 | 11.7 | 38.6 | 29.2 | 8.92 | 0.21 |
| ICICI [Get Quote] Prudential Power (G) | 100.32 | -9.8 | 9.0 | 27.8 | 18.8 | 8.68 | 0.18 |
| Birla Top 100 (G) | 19.14 | -12.6 | 7.8 | 27.6 | 31.8 | 8.08 | 0.15 |
| S&P CNX Nifty | -9.3 | 16.7 | 37.1 |
(Source: Credence Analytics. NAV data as on February 29, 2008.)
(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument)
It is apparent from the table that Birla Top 100 is nowhere near the top. Although this is an abbreviated time frame for an equity-linked investment, the yawning chasm between the fund's performance and that of its peers is difficult to ignore.
Volatility
Standard Deviation is a measure of the volatility that investors in the fund have been exposed to; a higher standard deviation implies higher volatility. This is the only parameter over which Birla Top 100 has performed well. With a Standard Deviation of 8.08 per cent, it is the least volatile fund. Sundaram Select Focus (10.36 per cent) is the most volatile fund.
Risk-adjusted return
Birla Top 100's track record in generating a superior risk-adjusted return (measured by the Sharpe Ratio) is disappointing. Its Sharpe Ratio (0.15 per cent) is the lowest in its peer group implying that the fund hasn't rewarded investors adequately for the higher risk they have been exposed to. Funds that have the best Sharpe Ratios (0.23 per cent) include DSP ML Top 100 and HSBC Equity.
Birla Top 100's performance trails that of its benchmark index, since inception. This is apparent from the fact that Rs 100 invested in the fund (since inception) would be worth Rs 191 today, while the same amount invested in the benchmark index would be worth Rs 218 over the same period.
In a nutshell . . .
It is obvious that investing in an NFO does not guarantee a superior performance. On the contrary, we have noted that in many cases, existing funds with established track records have done far better than NFOs over comparable time frames. But the investor with his eternal infatuation for everything new available at Rs 10 NAV almost always loses out on the opportunity to make money in existing funds with well-established track records.What should investors do?
The question that needs answering is -- should the investor invest in Birla Top 100? That would depend on his risk appetite, investment objective and the existing portfolio, among other factors. At Personalfn, we have always maintained that a 'one size fits all' approach doesn't work while investing. An investment avenue that is apt for one investor could be unsuitable for another. Therefore, investors would do well to consult their investment advisors/financial planners to determine the suitability of Birla Top 100 in their portfolios.Make the most of SEBI's "zero entry load" guideline. Read on
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