Prudential ICICI Dynamic: Win-win situation

A mutual fund scheme that looks for investment opportunities across market caps would do well to your mutual fund portfolio. And the way equity markets are behaving these days, this strategy helps. We recommend you take a look at Prudential ICICI Dynamic Plan.

Flexi style

The Indian stockmarket has shown wide variations in performance in the last four years or so. Sometimes large-cap stocks have outperformed the market, while mid-caps or small-caps have shone at other times. The first half of the current rally was dominated by mid-caps, now large-caps are gaining sheen.

Hence, it pays to be invested in a scheme that can capture the upsides of both these segments. Flexi or multi-cap funds aim to invest in scrips across market cap, depending on which one is doing better. For instance, in June 2005, when mid-caps were doing well, PIDP's exposure to them was 57 per cent and to large-caps 40 per cent.

Now, just around 34 per cent of the corpus is in mid-caps and 54 per cent in large-caps. PIDP follows a bottom-up stock-picking strategy and prefers to invest in companies that have the potential to compound their cash flows over the years.

High risk, high return

Considering the past two years, PIDP comes fifth on our list of 86 schemes; it returned 66.5 per cent as against 50 per cent by category average and 51 per cent by Sensex.

Being a dynamic equity scheme, PIDP's offer document allows the fund manager to switch entirely from equities to cash if he feels that equity markets would drop significantly. The upside is that if equity markets crash, dynamic funds protect the downside.

But if your fund manager gets his call wrong, it's disaster for your fund as it would miss the upside. Although PIDP has such flexibility, it has not had any reason to use it so far. In fact, no fund house worth its salt would want to risk its reputation and sell its entire equity holdings, even in volatile markets. Funds have been known to hold as high as 40 per cent cash in the past, but that's as far as we can expect any of them to go.

Fund manger

Also, the new fund management at PIDP inspires confidence. The scheme has grown by 130 per cent in the past year, from Rs 591.7 crore (Rs 5.92 billion) in October 2005 to Rs 1,362.8 crore (Rs 13.63 billion) as of October 2006.

The story is the same in almost all its other diversified equity schemes. Prudential ICICI's equity fund management team, led by chief investment officer Nilesh Shah, has brought stability as well as consistency to the fund house. Aided by his two fund managers Anil Sarin and Sankaran Naren, whom he once called the hidden stars of the India mutual fund industry, Shah has brought rigour and fund management expertise to the fund house.

The fund house has moved from being a 'best-selling' fund house to one with some 'best-performing' schemes as well. Although PIDP's former fund manager Anil Sarin has quit, the scheme is in safe hands with the new fund manager Naren. He has been successful with schemes like Prudential ICICI Discovery Fund, another star performer from this fund family. Says Shah: "Fund processes and objectives are very important and they don't change with the change of fund manager."

Why buy

• Flexibile approach: Invests across market cap stocks
• Consistency in performance can be attributed to the fund managers
• Well diversified across  sectors and scrips