As Mr Gunwani took over as CIO-Equity, Reliance Mutual Fund and the fund manager of Reliance Growth Fund in September 2017, there has been a drastic shift in the portfolio holdings and market-cap allocation. There has been a significant reallocation of assets from large-caps into mid-cap stocks. This comes especially at a time when most fund managers have been doing the opposite.

In March 2018, Reliance Mutual Fund reclassified the scheme from an Equity Growth scheme to a Mid-cap Fund. Though in the past the fund has not hesitated to introduce mid-caps in the portfolio, it maintained a multi-cap style of investing. Now, the fund has adopted a more aggressive mid-cap approach.

In view of the new strategy, the Reliance Growth Fund has rightly adopted the S&P BSE Midcap as the new benchmark, from S&P BSE 100 earlier.

In terms of performance, Reliance Growth Fund has delivered decent returns. Being a multi-cap styled fund in the past, it is not fair to compare the performance with the aggressive S&P BSE Mid-cap Index. On comparing the performance of the scheme with the S&P BSE 100, we find it has generated an acceptable alpha.

Even on comparing the performance to the more aggressive Mid-cap Index, it is seen that the returns of the growth scheme has closely tracked the S&P BSE Mid-cap. Thus with the new aggressive strategy of the fund and with a highly experienced fund manager, it needs to be seen whether the Reliance Growth Fund is able to generate an alpha as it has done in the past.

The AUM of the fund is not extremely high at around Rs 7,000 crore. This gives the fund manager a reasonable amount of flexibility and liquidity to manage a portfolio of mid-cap stocks.

In this brief analysis, we take a close look at the features and performance of Reliance Growth Fund.

Investment Objective of Reliance Growth Fund

Reliance Growth Fund has an investment objective to "achieve long-term growth of capital by investment in equity and equity related securities through a research based investment approach."

Reliance Growth Fund Details

Fund Facts

Category	Diversified	Style	Growth
Type	Open ended	Market Cap Bias	Mid-cap
Launch Date	8-Dec-95	SI Return (CAGR)	23.06%
Corpus (Cr)	Rs 7,033	Min./Add. Inv.	Rs 5,000 / Rs 1,000
Expense Ratio (Dir/Reg)	1.28% / 1.98%	Exit Load	1%

Data as on February 28, 2018.
SI Return as on April 4, 2018.
(Source: ACE MF)

Under normal circumstances, Reliance Growth Fund will allocate…

• 65% - 100% to equity and equity related securities

• 0%-35% to debt and money market instruments

Growth Of Rs 10,000, If Invested In Reliance Growth Fund 5 Years Ago

Reliance Growth Fund: Year-on-Year Performance

Reliance Growth Fund: Performance Vis-à-vis Category Peers

Rolling Period Returns

Scheme Name	Corpus (Rs Cr)	1 Year	2 Year	3 Year	5 Year	Std Dev	Sharpe
Mirae Asset Emerging Bluechip	5,131	34.19	26.62	25.94	31.16	15.50	0.19
Aditya Birla SL Small & Midcap Fund	2,070	35.68	28.14	25.01	27.02	17.35	0.20
L&T Midcap Fund	2,313	38.84	26.20	24.61	28.76	15.69	0.19
Canara Rob Emerg Equities Fund	3,209	34.25	23.12	23.70	29.36	17.46	0.15
Kotak Emerging Equity Scheme	3,027	27.12	22.19	22.79	25.83	14.98	0.14
Principal Emerging Bluechip Fund	1,666	32.81	24.20	22.52	27.93	16.53	0.14
Franklin India Smaller Cos Fund	7,128	26.96	22.50	22.19	30.71	14.41	0.16
Sundaram Select Midcap	6,256	27.09	21.67	21.68	26.17	15.96	0.14
DSPBR Midcap Fund	5,390	27.69	22.82	21.10	24.70	16.75	0.14
Kotak Midcap Scheme	834	26.67	21.50	20.96	23.51	15.42	0.14
Aditya Birla SL Midcap Fund	2,393	27.92	20.37	20.54	23.50	15.82	0.11
HDFC Mid-Cap Opportunities Fund	19,891	27.88	21.96	20.50	26.19	14.48	0.15
Edelweiss Mid Cap Fund	653	30.50	19.21	20.38	26.98	15.85	0.13
Franklin India Prima Fund	6,500	24.41	19.73	19.77	26.40	13.78	0.12
BNP Paribas Mid Cap Fund	814	27.32	18.30	19.54	25.54	16.78	0.09
SBI Magnum MidCap Fund	3,933	17.76	16.21	19.54	27.22	14.09	0.10
IDFC Sterling Equity Fund	2,548	39.78	23.22	18.90	21.48	16.39	0.12
Tata Mid Cap Growth Fund	652	27.45	16.35	18.41	24.83	16.72	0.05
Reliance Mid & Small Cap Fund	3,320	26.26	19.10	18.19	24.35	17.30	0.08
UTI Mid Cap Fund	4,167	22.66	16.33	17.94	26.73	15.65	0.09
ICICI Pru Midcap Fund	1,498	28.77	18.38	17.48	24.99	15.69	0.10
Invesco India Mid N Small Cap Fund	527	26.15	17.12	17.10	24.75	15.16	0.06
Invesco India Mid Cap Fund	174	25.27	16.80	17.09	24.11	15.07	0.06
Reliance Growth Fund	7,033	27.14	18.05	16.10	19.32	15.96	0.08
SBI Magnum Global Fund	3,456	18.42	11.62	14.39	21.57	13.63	0.03
Axis Midcap Fund	1,304	22.87	12.27	13.35	21.71	14.73	0.05
S&P BSE Mid-Cap		27.91	22.00	18.68	19.78	16.06	0.14
S&P BSE 100		13.95	13.56	9.07	13.48	13.18	0.01

Returns are on a rolling basis and those depicted over 1-Yr are compounded annualised.
Data as on April 4, 2018
(Source: ACE MF)  

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Given that the scheme will now compete with other mid-cap oriented schemes, let us take a closer look at the performance comparison. Reliance Growth appears at the bottom of the list in the longer-term periods, mainly because of its erstwhile strategy. The fund performance lags the benchmark and most other schemes in the category. However, over the past 1-year rolling periods, the performance of the fund has started to get better and in line with the category performance.

However, you should not base your opinion of the fund based on this performance. When compared to the S&P BSE 100, the more appropriate benchmark for the past performance, the returns of Reliance Growth Fund begins to look up. The fund outperformed the benchmark in all periods. Surprisingly, the volatility of the fund compares to other mid-cap schemes.

The top five mid-cap funds based on the 3-year rolling period performance include—Mirae Asset Emerging Bluechip, Aditya Birla SL Small & Midcap Fund, L&T Midcap Fund, Canara Robeco Emerging Equities Fund, and Kotak Emerging Equity Scheme.

Investment Strategy of Reliance Growth Fund

Reliance Growth Fund is a midcap oriented fund aiming at long-term long wealth creation through investments in high growth companies, which are potential large caps. The fund attempts to achieve superior alpha by investing in a combination of market leaders and emerging leaders. It endeavours to identify growth stocks that are available at reasonable valuation, thus adopting a Growth at Reasonable Price (GARP) style for investing.

Reliance Growth Fund invests in companies that have the potential to substantially increase their profitability and companies with a consistent track record. The fund manager will try to identify deep value stocks and benefit from the potential growth from such stocks. The fund invests in companies that are having ability to provide high alpha as compared to risk taken.

Currently, the portfolio is well positioned to benefit from domestic revival through allocation in themes like – Urban Discretionary: Auto, Retail, Short Cycle Capex: Industrial Capital Goods, Industrial Products and Unique Themes: Insurance, Commodity Exchange, Logistics/Distribution

Reliance Growth Fund - Portfolio Allocation and Market Capitalisation Trends

Reliance Growth Fund – Top Portfolio Holdings

Top 10 Stocks   Stocks % of Assets Varun Beverages 3.27 Muthoot Finance 3.04 Spicejet 2.63 Birla Corporation 2.51 HSIL 2.46 Cyient 2.44 Bharat Financial Inclusion 2.40 Vardhman Textiles 2.30 Cholamandalam Invest. & Fin. 2.08 NMDC 2.08	Top 5 Sectors
Holdings (in %) as on February 28, 2018 (Source: ACEMF)

Reliance Growth Fund currently maintains a portfolio of 81 stocks. The number of stocks in the portfolio has increased from around 55 stocks a year ago. The fund maintains a fairly well diversified portfolio over stocks and sectors. The exposure is not skewed to a specific set of stocks or sectors. Among the top 10 holdings, the weightage to individual stocks ranges between 2%-3%. The top 10 stocks account for just 25% of the total portfolio.

Among the sectors, Financial stocks accounted for 15% of the portfolio. Pharma stocks followed behind with an allocation of 9%. Stocks related to the Consumer Non-Durables and Power sectors made up 6.2% of the portfolio each. Auto Ancillary stocks trailed behind with an allocation of 5.3%.

Top Gainers in Reliance Growth Fund's portfolio

It is difficult to pick out the top gainers of the past year in Reliance Growth Fund's portfolio as just 20 stocks of the 81 stocks in the portfolio have been held for over a year. From these 20 holdings, Spice Jet (83%) and NCC (57%) are the only two stocks that returned over 50% over the past year. Among the other performers were Birla Corporation and HSIL.

The laggards in the portfolio included Max Financial Services (-12%), State Bank of India (0%) and Muthoot Finance (10%).

Suitability of Reliance Growth Fund

PersonalFN is of the view that, mid and smallcap space, although has corrected, the valuations are not encouraging, unless you hold a very high-risk appetite. If Indian equities tumble due to any global and/or domestic factors, the mid and smallcap space are bound to take beating, in fact by a greater magnitude than large caps, especially in an environment where corporate earnings miss market expectations.

Hence, it's better to be very selective in your approach. Prefer mutual fund schemes that follow strong investment processes and systems. Also, in the current scenario, staggering your investments would be a better strategy, as it can help manage downside risk. If you are addressing long-term financial goals, opt for Systematic Investment Plans (SIPs), as it would help you mitigate the risk in equities.

Midcap stocks tend to have a higher growth potential. They are often less researched and hence, more often, available at a discount to large-caps. Investment in midcaps can be rewarding over a longer term, as they need considerable time to grow. Though midcaps are often referred as the future large-caps, very few companies actually manage to zoom past the competitors. These companies are not as stable as the large sized companies and at times struggle to sustain when the going gets tough. For this reason, investment in midcaps is considered highly risky. But investment in mid-caps could be well-rewarding over the long-term, provided you hold a very high risk appetite.

Reliance Growth Fund, being mid-cap focused is certainly suitable for investors having a high-risk appetite with a long-term investment horizon. However, not much can be said on how the fund is likely to perform, given the new investment strategy.

Reliance Growth Fund has been generating decent returns ever since inception, and has performed steadily across market cycles. But given its new high-risk strategy, investors should clearly understand their risk appetite, before taking exposure in this fund.

If you plan to invest in mid-cap funds, do ensure that the investments is in line with your financial goals. If you are not sure about how to align these schemes with your tax planning or financial goals, do consult your financial planner or investment advisor.

Note: This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor.

Editor's note: If you’re unsure where to invest fresh investible surplus currently, to strike the correct risk-return trade-off we recommend adopt a ‘core and satellite approach’ to investing. Here are 6 benefits of ‘core and satellite approach’: Facilitates optimal diversification; Reduces the risk to your portfolio; Enables you to benefit from a variety of investment strategies; Aims to create wealth cushioning the downside; Offers the potential to outperform the market; and Reduces the need for constant churning of your entire portfolio  ‘Core and satellite’ investing is a time-tested strategic way to structure and/or restructure your investment portfolio. Your ‘core portfolio’ should consist of large-cap, multi-cap, and value style funds, while the ‘satellite portfolio’ should include funds from the mid-and-small cap category and opportunities style funds. But what matters the most is the art of astutely structuring the portfolio by assigning weightages to each category of mutual funds and the schemes you select for the portfolio.  Moreover, with change in market outlook the allocation/weightage to each of the schemes, especially in the satellite portfolio, need to change. Keep in mind: Constructing a portfolio with a stable core of long-term investments and a periphery of more specialist or shorter-term holdings can help to deliver the benefits of asset allocation and offer the potential to outperform the market. The satellite portfolio provides the opportunity to support the core by taking active calls determined by extensive research. So, PersonalFN offers you a great opportunity, if you’re looking for “high investment gains at relatively moderate risk”. Based on the ‘core and satellite’ approach to investing, here’s PersonalFN’s latest exclusive report: The Strategic Funds Portfolio For 2025 (2018 Edition). In this report, PersonalFN will provide you with a readymade portfolio of its top equity mutual funds schemes for 2025 that have the ability to generate lucrative returns in the long run. PersonalFN’s “The Strategic Funds Portfolio for 2025” is geared to potentially multiply your wealth in the years to come. Subscribe now!

 

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About the Company including business activity 

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989. 

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

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2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
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