Mutual Funds

Aditya Birla Sun Life Frontline Equity: Safe bet for long-term investors

Nithya Palani | Updated on June 03, 2018 Published on May 26, 2018

A diversified portfolio with a diffused approach makes the scheme less risky

Aditya Birla Sun Life Frontline Equity is a predominantly large-cap fund with an excellent track record over the past five years. It has been able to contain downsides well during the market falls of 2008, 2011, 2013 and 2016, and also participate reasonably in bull markets. Investors with long- term goals and a moderate risk appetite can invest in Aditya Birla Sun Life Frontline Equity.

While the fund delivers well over the long term, it may underperform over shorter time frames of 1-2 years.

The scheme invests mainly in large-cap stocks to the tune of around 80 per cent of its corpus, across market cycles, and the remaining in mid-caps. The fund adopts a growth-investing approach and invests in high-growth, high- potential stocks.

The fund has been able to beat the benchmark returns over the long-term periods of 5-10 years by 3-4 percentage points.

Whereas, over shorter time frames, it can fall short by a percentage point or two. Barring 2017 — when it missed the returns from the mid-cap rally by sticking to large-cap stocks — the fund has outperformed its benchmark consistently over the past five years.

The daily one-year rolling returns of the fund have been better than the benchmark almost all the time over the past three years.

Portfolio moves

The fund has a large diversified portfolio with 77 stocks across different sectors. This diffused approach to portfolio construction makes the scheme less risky. It has parked around 25 per cent of its corpus in its top five stock picks — HDFC Bank, ICICI Bank, Infosys, ITC and L&T.

Investments in stocks such as Bajaj Finance, Cholamandalam Investment and Finance Company, HUL, Britannia Industries and Titan have worked well for the fund in the past one year. Picks such as Tata Motors, Dr. Reddy’s Laboratories and Idea Cellular, though, have pulled the overall returns lower than the benchmark.

Around 60-65 per cent of its corpus is invested across five sectors, with a major chunk allocated to banking.

Over the past one year, the fund has added a few stocks such as Dabur India, Emami, PNB, PNB Housing Finance and ONGC to the portfolio.

These have mostly delivered modest returns.

Risk-averse long-term investors can opt for the fund which has a long track record of delivering moderate returns even during market volatility.

SEBI guideline changes

The fund is mandated to invest a minimum of 80 per cent in large-cap stocks and the remaining in mid- and small-caps and debt instruments. It will change its benchmark to Nifty 50 from S&P BSE 200 on June 4. The portfolio may now be more skewed towards mega-cap stocks, thus reducing its risk levels a bit.

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