Mid- and small-caps have rallied for most part of the last two years. The BSE mid-cap index managed to deliver a healthy 7.4 per cent return in the not-so-happening market of 2015, when broader indices, the Nifty and the Sensex, lost 4 per cent and 5 per cent, respectively. Even in the recent rally since early March 2016, the BSE Mid cap index has outperformed the bellwether indices.

But the fall in mid- and small-cap indices can be as spectacular as its recovery, as was evident during the market fall in the first two months of this year.

Hence, while among equity funds mid-cap funds can deliver high returns during market rallies, they can also burn a hole in your pocket when the market takes a beating.

Investors with higher risk appetite and longer term horizon of three to four years can consider buying the units of Birla Sun Life Pure Value. The fund is benchmarked against the S&P BSE 200 and over one-, three- and five-year periods the fund has outperformed its benchmark by 10-20 percentage points. It has also beaten its category average returns over various time periods. Moreover, the fund remains in the top quartile in the one and three-year time frames.

Through ups and down

The fund has delivered consistent performance in both up and down phases of the market.

In the market fall of 2011, the fund managed to contain the downside well. While its benchmark fell 27 per cent, it capped its loss at 24 per cent. Even in the sideways market of 2013, the fund stayed ahead of its benchmark.

During the bull market of 2014, the fund outperformed its benchmark as well as category by a wide margin. The fund has outdone its peers, namely UTI Mid Cap, BNP Paribas Midcap and DSPBR Small and Mid-cap, in the last one year.

Portfolio and strategy

The fund generally invests 85-95 per cent in equities and the balance in debt or takes cash calls.

The fund has held, on an average, 40 per cent in large-caps and 51 per cent in mid-caps in the last one year. The top three sectors in the fund’s portfolio are petroleum products, chemicals and banks. The fund is overweight on energy, chemicals and construction, but underweight on healthcare, IT, FMCG and auto ancillaries. Interestingly, the fund does adopt buy and hold strategy on few stocks. For more than a year, the fund has held stocks such as Tata Chemicals, Omkar Speciality Chemicals, Federal Bank and Gujarat Flurochemicals.

GAIL (India) entered in November 2015, is still the fund’s top preferred stock along with HPCL, Gulf Oil Lubricants India and Kaveri Seed Company. YES Bank, Bank of Baroda, HCL Technologies and Reliance Industries are some key large-cap stocks in the portfolio. The fund holds 47 stocks in its kitty. Individual stock allocations rarely account for more than 5 per cent with an exception of one or two stocks in the portfolio.

This diffused approach mitigates the risk of concentration.

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