There are a plenty of schemes which are performing better than Reliance Equity for investors to choose from, even in the large-cap segment
FOR the smart investor, performance is the only yardstick to compel him stay invested in any investment. Be it mutual funds or any other investment avenue, it is the extent of returns that matters the most. And when returns are hard to come by, even the pedigree of the investment does not come handy. In the case of Reliance Equity mutual fund scheme is probably one of the fine examples to support the above cause. The scheme, which created hysteria at the time of its launch in March 2006 by mopping up about Rs 5,700 crore, the highest ever by any mutual fund scheme then, is today left with just about one third of its original asset base, despite the markets have gained quite a lot since the scheme's inception.
PERFORMANCE:
But on the performance front, the scheme has been a disappointment right from the time of its launch. Barring the meltdown year of 2008, where the fund's extremely high cash calls prevented its assets from going down the drains, Reliance Equity's performance has done little to cheer investors. In 2006 and 2007, when the markets were gearing for new heights, Reliance Equity turned out to be a consistent underperformer compared with its benchmark index — the Nifty. The fund returned just about 17% against Nifty's 25% gains since its launch. In 2007, its returns of about 52% were dwarfed by the Nifty's gains of about 55% then.
Again in 2009, when the equity indices and equity mutual fund schemes made a dramatic recovery following the financial crisis of 2008, Reliance Equity managed to return just about 55% to its investors against the Nifty's 76% gains in that year. In the current calendar year, Reliance Equity's performance has lost 2% against the Nifty's 14% gains so far.
PORTFOLIO:
Reliance Equity falls in the category of large-cap equity mutual fund schemes and is thus considered to be a relatively safer equity investment. The fund's low beta of 0.8 also corroborates the same. It signifies that for every Re 1 gain or fall in the broader market index, the scheme will rise or fall by about 80 paisa respectively. Thus, given its large-cap orientation, Reliance Equity is assumed a suitable investment for investors with lowrisk appetite.
But the fund has relatively concentrated investment strategy. Despite its corpus of nearly Rs 2,000 crore, the fund holds just about 20 recognised large-cap equity holdings, which account for over 80% of the fund's portfolio. This drastically increases the fund's risk per stock holding.
As far as the fund's equity selection is concerned, it holds some of the finest blue-chip Nifty stocks. But at the same time, it also misses some of the better performing Nifty constituents.
For instance, the fund has been holding Reliance Communications right from 2006, which is currently trading at less than half its price then. While this does indicate fund's optimism towards the telecom sector, it clearly misses stocks like Bharti Airtel from the portfolio. Similarly, while ICICI Bank currently accounts for more than 7% of the fund's equity portfolio; scrips like HDFC, HDFC Bank and Axis Bank have been ignored.
OUR VIEW:
Competition in the mutual fund industry is getting fierce with each passing day and there are a plenty of better performing schemes for investors to choose from even in the large-cap segment. Within the Reliance basket too, investors can opt for better performing schemes like Reliance Vision or Reliance Equity Advantage over Reliance Equity.
