Reliance Equity Opportunities Fund: Should you buy the mutual fund scheme?

Investment

oi-Sunil

By Sunil Fernandes

Published: Friday, September 19, 2014, 10:19 [IST]

Reliance Equity Opportunities Fund is a mutual fund scheme that invests in large cap, small cap and mid cap stocks. The scheme is a high risk scheme since bulk of the money is parked into equities.

The Fund was launched in 2005 and has assets under management of approximately Rs 6162 crores, which is rather huge. Reliance Equity Opportunities Fund Dividend was placed at Rs 33.884.

The Fund has been rated 4 star by Value Research Online.

Reliance Equity Opportunities Fund Review

The Fund has generated a return of almost 72.4 per cent in the last one year, while the return over three years has been 25.73 per cent and over 5 years has been 21 per cent. This is far better than what bank deposits would have given.

Now, in the last one year a return of 72 per cent is better than the Sensex which has rallied around 50 per cent since Sept 2013. But, the question remains whether the fund can continue to generate such stupendous returns.

It's almost impossible for it to generate 72 per cent returns of the last one year in the next one year. Going forward, the fund may give more tempered returns given that the Sensex and the Nifty have already run-up too sharply.

A look at the portfolio of the fund and we realise that it comprises of several blue chip stocks some of which include:

1) Divis Labs
2) HDFC Bank
3) Bharat forge
4) Cummins India
5) State Bank of India
6) Infosys
7) ICICI Bank
8) Trent etc.

Now some of these stocks are from the mid cap and small cap space. What this means is if the markets fall, these stocks could fall faster, thereby eroding gains. Now, it's highly possible that the Sensex and the Nifty may fall at some stage given that they have rallied sharply. When this happens the net asset value of fund is likely to fall making it an attractive proposition for investors. Key risks for the fund continue to remain a sharp fall in the Divis Labs stock. Almost 5 per cent of the Fund's exposure is to a stock like Divis Labs. If the stock rallies the NAV could rise.

The SIP proposition a good one

Reliance Equity Opportunities Fund SIP is as little as Rs 500, making it convenient for investors to invest in the scheme, through the SIP route every month for as little as Rs 500.

Conclusion

The scheme offers good value for the long term. But, the NAV of Reliance Equity Opportunities Fund continues to remain high, because the markets are high. Should the markets fall, it would be time to buy the fund. Also, small and mid cap stocks tend to fall faster than the Sensex and the Nifty and the Fund's exposure to these stocks is high. What this means is that there is a greater risk of capital eroding, as compared to funds with exposure to large cap stocks. If you are a little less risk averse it would be better to invest in funds that park money in large cap stocks.

GoodReturns.in