Investors advised to go with large-cap funds

Even at a time, when key indices are scaling new peaks, investors are not apprehensive of putting their money in equity funds and they continue to look bullish on domestic stock market owing to India's strong economic growth.

At current levels, mutual fund distributors and fund managers are advising investors to opt for diversified equity funds having orientation towards large-cap stocks with an investment horizon of at least three years.

They are promoting such investments via systematic investment plans so as to beat market volatility.

Under a systematic investment plan, investors put in money at regular intervals over a period of time instead of making a one-time lump-sum investment.

Noting attractive valuations of mid-cap stocks, some fund managers are also promoting investments in mid-cap funds at current levels, although they warn of inherent risk associated to such funds.

A senior official of the Birla Sun Life Mutual Fund said: "Some people see the current level as an opportunity to enter the market as they feel the market to consolidate due to growth prospects of India."

India's economy is expected to grow 8.0% in 2006-07 (April-March), as per the revised estimate of Reserve Bank of India in its recent monetary policy review.

Finance Minister P Chidambaram recently said that India could sustain 9-10% GDP growth between 2007 and 2012.

Sameer Kamdar, head Mata Securities, a Mumbai-based distribution house, said: "We are encouraging investments in diversified equity funds through SIPs. Predominantly, schemes with more large-cap orientation are being promoted."

J Rajagopalan, managing director, Bluechip Corporate Investment, said that investors were interested in equity schemes, mostly in large-cap funds.

Kamdar said that there was some interest in mid-cap funds but also warned investors of volatility.

The Birla Mutual Fund official said: "After May, mid-cap stocks have not risen that much. Some people are taking bets on this segment and we are also promoting investments in mid-cap funds."

In May, CNX Midcap Index fell 14.42%. Some fund officials expressed concern over lack of inflows in existing schemes.

As per the data of the Association of Mutual Funds in India (AMFI), equity funds category witnessed a net inflow of Rs 1367 crore in October compared to Rs 684 crore a month ago.

Two equity funds "� Birla Long Term Advantage Fund and UTI Wealth Builder Fund "� allotments of which were completed, collectively raised over Rs 1300 crore, AMFI data showed.

Recently, DSP Small and Mid-Cap Fund raised over Rs 1400 crore. It was the first open-ended equity fund launched in the industry since April, when Securities and Exchange Board of India revised the norms on amortisation of initial issue expenses.

The revision in norms led to launch of only close-ended schemes, which were allowed to amortise initial issue expenses.

A section of fund officials also feel that investors may start altering their asset allocation and take exposure even in balanced or hybrid schemes like monthly income plans.