Reliance Equity Opportunities Fund - Stable Fund

August has been a bad month for the equity market. Factors like weak global and domes-tic cues, negative out-look on global growth and downgrades have led to a sharp fall in the market. The BSE Sensex fell by 8.4 per cent during the month. Mid and Small-Cap companies underperformed their Large-Cap counterparts, and this is evident in the way the BSE Mid-Cap and Small-Cap fell by 9.3 per cent and 14.1 per cent respectively.

However, after this fall and the correction, this would probably be an opportune time to buy good stocks at a bargain price. For those who of you who take the Mutual Funds route to the equity market, the Reliance Equity Opportunities Fund is one which has been a consistent performer, investing across market caps and various sectors to generate good returns for investors.

Reliance Equity Opportunities Fund is a Multi-Cap fund that invests in stable Large-Cap and growth-oriented Mid and Small-Cap companies belonging to emerging themes/sectors, which enables it to grab opportunities much ahead of time. The fund has the flexibility to be overweight in a particular sector or market cap, depending on the potential and prospects that arise.

Sailesh Raj Bhan, who has over nine years of experience in equity research, has been managing this fund since its inception. He gets ideal support from Viral Berawala, the co-manager of the fund since September 2010.

Launched in 2005, the fund has provided a CAGR of 20.73 per cent since its inception, as compared to 15.39 per cent provided by the bench-mark. It started off on a good note by generating 43.30 per cent returns in 2005, and subsequently generated 51.28 per cent in 2006, as compared to 33.93 per cent earned by the category as a whole. 2007 and 2008 were not great years for this fund, but it again managed to outperform both its category average and the benchmark in 2009 and 2010 by a huge margin. It also scores better than the category in terms of the risk-adjusted returns that it provides, which stands at 0.66, as measured by the Sharpe Ratio.

The fund invests across markets caps, with at least 35 per cent of its net assets going into Large-Cap stocks to provide stability and liquidity to the portfolio. However, the fund is biased towards Mid-Cap stocks overall, with an allocation above 50 per cent to this category. The fund usually does not take huge cash calls, except for a few months in the past when it did so. The fund manager endeavours to restrict cash calls up to five per cent of the portfolio. Currently, the fund is overweight in pharmaceuticals, media and entertainment and retailing, and underweight in banking and financials and consumer non-durables vis-a-vis its benchmark.

Investing in Small/Mid-Cap stocks involves a high degree of risk. The fund has currently invested 59 per cent of its net assets in Mid-Cap and Small-Cap stocks, and is suitable for those who want ‘added’ diversification to their portfolio by investing across sectors and market caps. Hence, it can be included as a satellite fund in the portfolio, but only for investors who are looking to stay invested for a long haul.