The 2005-06 period saw an unprecedented number of new fund offers (NFOs) being launched. With equity markets soaring, virtually every fund house under the sun was busy capitalising on the euphoria by launching NFOs. It's a different matter that most of the NFOs were refurbished versions of existing funds and could add little value to investors portfolios.

At Personalfn, we thought it would be an interesting time to review the performance of some of those NFOs. At a time when NFOs of the mid cap and close-ended varieties were the order of the day, a handful of large cap NFOs also made their presence felt. SBI Blue Chip Fund (SBF), an offering from SBI Mutual Fund, was one such NFO. It can be safely stated that the SBF NFO ranked as one of the more popular NFOs of that period. Launched in December 2005, the fund had then mobilised a record asset size (around Rs 28,550 million) for an open-ended fund during the NFO stage.

SBF was positioned as a large cap offering that would invest in blue chip stocks; such stocks were defined as large companies with an established business presence and possible market leaders, among others. Until then, the fund house's arsenal was largely populated by mid cap offerings, hence with SBF, it was moving into relatively unknown territory.

At Personalfn, we have always maintained that investors should stick to funds that have a proven track record across parameters and market phases. NFOs should be considered for investment only when the offering is truly unique and if its proposition is distinct from that of existing funds. Hence, our view was that investors should give the SBF NFO a miss in favour of existing large cap funds with proven track records.

Given the high investor interest in the NFO, we thought it would be interesting to study how the fund has fared so far and whether investors would have been better off heeding our recommendation to ignore the NFO.

  The face-off

	NAV (Rs)	1-Mth (%)	6-Mth (%)	1-Yr (%)	Since Incep. (%)
Reliance Vision (G )	220.07	7.6	18.0	64.3	29.9
DSP ML Top 100 (G)	68.04	6.5	15.0	58.9	56.7
Kotak 30 (G)	80.36	8.7	13.5	57.1	52.9
Franklin Bluechip (G)	152.10	9.3	11.7	55.9	30.8
ICICI Pru. Growth (G)	106.23	7.5	10.2	48.7	29.5
SBI Blue Chip (G)	12.79	6.1	6.4	38.7	18.6
BSE 100		7.7	11.7	51.3

(Source: Credence Analytics. NAV data as on July 25, 2007. Growth over 1-Yr is compounded annualised)

SBF's performance on the net asset value (NAV) appreciation front has been modest at best. Over the last 12 months, SBF's NAV has appreciated by 38.7%; the fund trails its large cap peers by a significant margin. Also, the fund has failed to match its benchmark index i.e. BSE 100 (51.3%) over this period. Since inception in December 2005, the fund has clocked a growth of 18.6% CAGR.
 

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  As can be seen in the graph above, Rs 100 invested in SBF on inception would be worth approximately Rs 128 at present, while an investment in the benchmark index i.e. BSE 100 would have yielded Rs 152.

  It must be mentioned here, that these are early days for the fund. It hasn't been in existence for a 3-Yr period as yet; we believe the same should be treated as a minimum time frame for evaluating investments in equity-related investment avenues. However it can be stated that in its existence so far, the fund's performance has been far from impressive.

  A point of note is that large cap funds can succeed in clocking above-average growth when large cap stocks hit a purple patch; they will lag peers with a fluid investment mandate when stocks from the small/mid segments emerge as the season's flavour.

  What should investors do?
  Should investors consider investing in the fund or liquidate their existing investments? Well, that would depend on the investor's risk appetite, investment objective and existing portfolio, among a host of other factors. At Personalfn, we have always maintained that a one size fits all approach doesn't work while investing. An investment avenue that is apt for one investor could be grossly unsuitable for another. Investors would do well to consult their investment advisor/financial planner to determine the suitability of SBF in their portfolios.

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