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Analytical Study of Birla Sun Life Frontline Equity-Growth Fun

The Birla Sun Life Frontline Equity Fund is an open-ended growth scheme classified under the diversified large cap category. The fund aims to generate long-term capital growth. It is a diversified portfolio that invests across sectors in line with S&P BSE 200 Index, with a bias for large caps. Benchmark index of the fund is S&P BSE 200. It follows an investment style focused on large cap growth stock.

The fund has concentrated its exposure to large-sized companies, which should serve as a good addition to a retail investor’s portfolio.

The fund has weathered many bull and bear phases, and has consistently outperformed its benchmark.The fund has delivered a consistent performance in the last ten years, even in falling markets. Its ten year annualized returns were 15.15% compared with the benchmark’s 9.61%. The higher the outperformance, the better the consistency, and returns on Birla Sun Life Frontline Equity Fund since the past ten years (as of March 20, 2017) are the best example of such a consistent performance.

In the past 3-year and 5-year periods, the scheme has offered 19.73% and 18.23% returns, respectively, as against its benchmark index BSE 200, which has offered 15.40% and 13.00% returns, respectively, and the NIFTY 50, which has offered 12.10% and 11.60% returns, respectively, as of March 20, 2017.

It follows growth at a reasonable price for investing. The company holds a distinguished competitive edge in the industry, with special focus on corporate governance and attractive valuation. The fund has outperformed its peers in the past ten years.

The fund has also delivered better performance in comparison to its peers Kotak 50, Kotak Classic Equity – Regular Plan, and DHFL Pramerica Large Cap Fund during this period:

                                                             Table no-1

 

Large cap funds   Returns (in %)
1 Year 3 Years 5 Years 10 years
Birla Sun Life Frontline Equity Fund 26.42 19.73 18.23 15.15
Kotak 50 22.50 18.08 15.19 12.23
Kotak Classic Equity Regular Plan 25.37 16.19 14.50 11.49
DHFL Pramerica Large Cap Fund 19.25 17.45 15.39 11.69
HDFC TOP 200 32.00 18.10 14.70 14.16
BSE 200 22.50 15.40 13.00 9.61
NIFTY 50 18.50 12.10 11.60 8.95

On the basis of three-, five- and ten-year returns, the fund has beaten its benchmark by over 4 percentage points on an annualized basis. The fund has invested 85% in large caps and 10-20% in mid-caps. The fund core portfolio constitutes long-term holdings. The fund has maintained sectorial weights within the range of its benchmark index. The top five sectors holding percentage comprise the Information and Technology, Banking and Financial, Energy and FMCG sectors. On the other hand, the top 10 sector weightage allocation percentage is as follows:

                                                                    Table No-2

Top 10 sector weights (%) Company
Banking and Financial 30.53 HDFC, ICICI Bank, Kotak Mahindra Bank, HDFC Bank, SBI, Yes Bank, Federal Bank and IndusInd Bank.
Energy 13.75 RIL, NTPC, Power Grid Corp and Indian Oil Corporation.
Automobile 9.38 Maruti Suzuki, Tata Motors and Mahindra & Mahindra
Information Technology 9.02 Infosys, HCL Tech & Tech Mahindra
Healthcare 8.35 Sun Pharma & Aurobindo Pharma
FMCG 8.09 ITC and Hindustan Unilever
Diversified 4.02 L & T and Grasim Industries
Engineering and Capital Goods 2.64 Cummins and others
Cons Durable 2.38 Compton Greaves and others
Metals and Mining 2.35 Coal India and others

Source: Money control and Value research

Top holdings among the consistently held stocks include Infosys with average exposure of 4.50% followed by HDFC Bank (4.33%), ICICI Bank (4.29%), RIL (4.12%) and ITC (3.75%).

The fund uses a strategy of generating alpha through concentrated sector bets. It has always maintained a holding of pure large cap shares within the benchmark index. A SIP return of 5 years and 10 years of this fund has been 17.32% and 15.19% per annum respectively. Backed by a stable management team, it’s a top choice in the large-cap category.

Equity funds present a greater risk of capital loss than do hybrid/diversified funds. One can invest a fixed amount in a mutual fund regularly through a SIP; the frequency can be daily, fortnightly, monthly, and quarterly. For example, at a per-month investment of ₹ 5000, one can receive ₹ 30.64 lakhs after 180 months, assuming a 14% rate of return per annum. Every decision has some objectives and goals. The above amount could help cover your child’s higher education expenditure after 15 years.

The Kotak 50 large cap fund, which invests close to 80% of its portfolio in the top 50 stocks by market capitalization, has also delivered an encouraging performance in the past five years. Furthermore, in the past 3-year and 5-year periods, the Kotak 50 has offered 18.08% and15.19% returns, respectively, as against its benchmark index Nifty 50, which offered 12.10% and 11.60% returns, respectively, as of March 20, 2017. It also follows growth at a reasonable price.

Risk Analysis of Birla Sun Life Frontline Equity Growth Fund:

Investors generally focus only on the returns of the fund, irrespective of risk. However, it is very important to consider the risk aspect of the investment since risk and returns are two sides of the same coin.

Popular ratios to measure risk in mutual funds:

  1. Standard deviation
  2. Beta
  3. Alpha

The above ratios can be used to evaluate the performance, risk and returns of a mutual fund.

Standard Deviation:

Standard deviation is a measure of the total risk of a fund. The standard deviation of a fund measures the degree to which the fund fluctuates in relation to its average return for a fund over a period of time. High standard deviation denotes high volatility. This fund having standard deviation of 14.79% as of 28.02.2017, which means it has a tendency to deviate 14.79% from its category average return.

 

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