The heightened anxiety of the fund managers to show short-term performance invariably leads them to chase these stocks that are in vogue and leaving out companies that may perform better over a medium to long term. Such a convergence of thought among the investors in the Indian market looks frightening. History has shown that when such euphoria engulfs the investors, valuations or the long-term fundamentals of the company are thrown to the wind and stock price performance becomes the sole factor in decision making.

If one were to recall the bull markets of 1993-94, he will vividly remember how seemingly under-priced IPOs, PSUs with great assets,automobiles and ancillaries, which showed extra-ordinary short-term growth were taken to dizzy heights. However, when the fundamentals turned for the worse, funds were left with heavy bets in such companies barring a very few which were better diversified. A large number of relatively new players in the mutual fund market make study of fund managers over various cycles of economy impossible.

The risk profile of any fund can be measured by factors like volatility of the NAV, the concentration of investments in a particular stock or a sector, the consistency of investment philosophy, etc. In this context, any investor looking to invest in mutual funds should try to understand the philosophy of the fund they are investing in and develop comfort with such a style. The investor should see that the portfolio is reasonably diversified and hence, is less volatile, unless they want to take a high risk bet.

Sundaram Growth Fund, an open-end growth fund from Sundaram Newton AMC, is a broad-based portfolio thatoffers investors a less concentrated and consequently, less risker investments in fundamentally sound companies. Due to its prudent investment policies, the fund has been able to show consistent performance in the last two years. This is evident from the fact that, since inception, the fund has outperformed its benchmark index, viz; BSE 200 in 6 out of 8 quarters.

This performance has been achieved without taking extra-ordinary high exposures to specific sectors but by investing in a broad basket of 30-35 stocks. At the end of March, 1999, the fund returned 49.3 per cent return since its inception (April, 1997) vis-a-vis 14.2 per cent return yielded by BSE 200 index.

It is the internal policy of the investment management not to exceed prudential limits of exposure in a particular company or industry which is in line with global practices of fund management. Contrarians may opine that there are only a few credible investment opportunities available in Indian market and hence, focus (an euphemism forconcentration) is the essence of running a portfolio.

However, this may not lead to a consistent performance as investing in ``hot'' stocks of the day has its pitfalls. This was evident in the performance of the funds that were present during the 1993-94 stock market boom. The fund aims to avoid such pitfalls by picking up good stocks from various sectors, monitor their performance continuously and taker appropriate action. This approach has not catapulted the fund into the galaxy of top-performing funds, but has helped to achieve a steady out-performance throughout its existence. The long-term benefits of such approach is quite obvious, that of providing steady returns with much lesser risks.

I must point out that investments, most often, are based on the individual merits of the company rather than the sectors they belong to. For example, companies which are very strong in their distribution network, a key to their success, may be from different industries like consumer goods, auto ancillary or softwareeducation. Companies with strong brands are again available in different sectors like pesticides, cigarettes, pharmaceuticals or even automobiles. By identifying the key strengths of such companies and monitoring those parameters that help the company to achieve an above-average performance, the fund aims to deliver consistent performance.

Some of the themes the fund focusses on to invest are :
Changing Demographics, Rising Urban Consumerism, Lifestyle, Education & Healthcare : HLL, Bausch & Lomb, HDFC, Smithkline Pharma, Hoechst, knoll pharma, Nestle, Procter & Gamble, NIIT, ITC, Lakme.

Strong Distribution Franchise in a Steady Replacement Demand Market :
Castrol, MRF Tyres, Exide Industries, TVS Srichakra Tyres.Restructuring/Rationalisation of Business and Cost Cutting :
Dabur, Raymond, Pfizer, Telco, Philips, ACC, Swaraj Engines, Indian Rayon.Unique Products and/or Strong Brands : Smithkline Beecham Consumer, Hero Honda.

Globally Competitive : Infosys, BHEL, L&T, Sundaram Fasteners, Satyam,Punjab Tractors.

By regularly monitoring the assumptions under the themes and companies, the fund aims to identify any changes in macro themes or the competitive position of individual companies within the themes and appropriately change the investment patterns. Going by the AMC's commitment to long-term benefits to investors, consistent above average performance, active efforts to control risks, the fund is ideal for investors who wish to save regularly in stock markets amd looking to reap medium to long term benefits of investing in a diversified portfolio of shares. Investors who do not have a high appetite for equity risks can take a combination of Sundaram Growth Fund and Sundaram Bond Saver (a debt scheme) to achieve their required risk-reward investment portfolio.

The author is managing director, Sundaram Newton AMC