Zurich India Prudence: Invest

Recommendation: Invest

Suresh Krishnamurthy

FRESH investments can be considered in Zurich India Prudence.

Its performance over the long term places the fund in the top quartile of balanced funds. It has also continued to perform impressively in the recent period. The NAV of the growth option is Rs 17.97 per unit and that of the dividend option Rs 11.26 per unit.

The fund has a higher exposure to equity. While this appears sensible from a long-term perspective, the short-term returns from equity may be affected by the downturn in the economy. The portfolio of Zurich India Prudence is also vulnerable to the downturn in the economy since the fund has large exposures to sectors such as auto, engineering, petroleum, and steel. In this backdrop, investments can be made on a staggered basis.

Suitability: Balanced funds are suitable investment options for conservative retail investors who favour a passive approach to investing. As asset allocation determines a large portion of long-term returns, investors with a passive approach may find it difficult to maintain allocations consistent with risk preferences.

Zurich India Prudence is particularly attractive because of its performance record. However, investors should consider if the higher equity exposure is consistent with their risk preference before committing funds.

Performance: The growth option of Zurich India Prudence has registered a return of 19.9 per cent annualised over the past three years. In the recent periods of the past six months and one year too, the performance has been much better, and the volatility less than the average performance of peer funds.

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Portfolio: The fund has invested around 61 per cent of its net assets in equities and the rest in debt and cash. Given the attractive valuation of stocks, the higher allocation to equity appears reasonable. The fund has maintained a higher exposure to equities, at least since March 2001.

With respect to sectors, the fund has a higher exposure to the auto sector, closely followed by healthcare. Interestingly, the equity investments differ strikingly from that of other equity funds from the Zurich stable _ Zurich India Equity and Zurich India Top 200 fund _ both in sector allocations and individual stocks.

The difference may be due to the fund's conservative strategy. There is also more than hint of value investing style in its equity investments. Overall, the equity portfolio does indicate a cause for concern. In this backdrop, staggered investments may be better.

The fund has completely stayed away from government securities. This is desirable because of the higher returns in corporate bonds, which are now more attractive because of the decline in interest rates. In addition, except for the 3.2 per cent invested in IDBI bonds, the rest of the debt portfolio is invested in manufacturing companies.