A recent report says that Franklin India Bluechip's one-year return is 9 per cent, which is very much lower than its peers. Should I continue to hold the units of Bluechip or redeem and shift to another fund? Please advise.

Seetharaman Varadarajan

You can continue to hold a portion of your portfolio in the Franklin India Bluechip Fund, as there are few other funds with a comparable long-term track record.

Market conditions also seem favorable for remaining invested in large-cap stocks, rather than in mid-caps. But it is now important to diversify your portfolio, so that your investments are not too vulnerable to the performance of this one fund.

You can consider distributing your savings evenly between funds such as HDFC Top 200 Fund, Templeton India Growth Fund and HSBC Equity Fund, by switching a portion of your investments in the Franklin India Bluechip Fund.

The recent performance of the Franklin India Bluechip Fund has been disappointing. For one, with its portfolio invested only in large-cap stocks, the fund has substantially trailed others that have actively sought out opportunities among the mid-cap stocks.

Several of the big money-making opportunities in the market over the past year have been in the universe of mid-cap stocks and the fund has missed out on a good number of these because of its conservative mandate.

But, more important, Bluechip's performance in the recent months, also seems to have slowed down vis-a-vis other large-cap oriented funds.

Bluechip's one-year return now stands at 9 per cent, when compared to 14 per cent for Templeton India Growth Fund and about 19 per cent for HDFC Top 200 Fund.

It is not clear yet if this slowdown in performance is on account of short-term factors, such as the sector choices that the fund has made in the recent months. By end of March, the fund had about 24 per cent of its assets invested in the frontline technology stocks, which have taken a sharp drubbing in the recent week.

This is likely to have depressed Bluechip's net asset value, relative to other funds that have a lower weightage in technology stocks. If the recent slowdown is explained by these factors, then the fund could recoup its performance once the market digests the recent technology company results. However, as a matter of caution, we reiterate that it may be better for investors who hold a very large portion of their portfolio in the Franklin India Bluechip Fund to diversify their holdings.

Though mid-cap stocks would continue to offer superior prospects for returns over the long term, recent trends in the market suggest that large-cap stocks may be better placed in the short term.

Given the increasing fears of a global slowdown in the recent times, investing conditions have turned more risk-averse.

In a phase such as this, institutional funds may flow into large-cap rather than mid-cap stocks. Given that Franklin India Bluechip has an impressive track record of making good stock choices within the large-cap universe, you can continue to hold the fund in your portfolio.

We will be keeping a close watch on the fund's performance and will revisit the fund in the event of a change in our recommendation.

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Aarati Krishnan

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