Despite the volatility in the sector, diversified growth funds continue to bank on software in a big way.

Most fund managers (Tata Mutual Fund, Sun F&C MF, JM MF, Kothari Pioneer MF) we have interviewed in the past still have unshakeable faith in software and see it as the main growth driver in future. This is notwithstanding the volatility that has become second nature with software.

Diversified, Growth Funds	Date of holding	% Holding	NAV (Rs)
Birla Advantage Fund	30 Jun,2000	68.0	36.5
Canexpo	31 Jul,2000	58.7	17.5
Tata Tax Savings	31 Jul,2000	58.0	12.1
Canpep 1993	31 Jul,2000	56.8	20.4
IL&FS Gr & Val (Gr)	15 Jul,2000	52.3	12.6
JM Equity Fund (Gr)	31 Aug,2000	47.0	10.2
K P Tax Shield (Gr)	31 Aug,2000	46.7	26.7
Birla Balance (Gr)	30 Jun,2000	46.0	11.1
Tata Young Citizens	31 Jul,2000	45.0	10.5
Tata Balanced	31 Jul,2000	43.0	14.4
Alliance Equity Fund (Gr)	31 Aug,2000	41.6	35.5
Alliance Cap. Tax 1996	31 Aug,2000	41.4	66.0
Franklin Growth Fund	31 Aug,2000	41.0	6.8
Zurich(I) Equity (Gr)	29 Sep,2000	40.9	19.1

(The above table shows only non-IT funds with more than 40% exposure to software)

Some diversified growth funds are so highly skewed towards software, that the fund objective ought to be changed from growth to explosive growth. Which brings us to the investor's perspective. How does high software allocation work to his benefit or detriment?

A high software allocation combined with generous allocations to telecom and media (which are equally volatile) without a hedge in the form of old economy and FMCG (fast moving consumer goods) stocks could work to the investor's detriment. A high TMT (technology, media, telecom) allocation in the absence of a substantial fixed income hedge will introduce a great degree of volatility in the fund's returns.

So there must be a hedge, be it in the form of old economy stocks or a higher fixed income allocation. Without it, the fund and therefore the investor, could be exposing itself to a lot of unwanted volatility and instability. The investor must look out for this hedge before taking exposure in a diversified growth fund.

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