Sundaram Bluechip Fund: Should You Invest?

Sundaram Bluechip Fund is coming-out with an NFO and the scheme is opened from Sept 18 to Sep 30. This fund will invest pre-dominantly in large cap equities. The large cap stocks would essentially mean the top 100 stocks by market capitalization.

Should you invest in the Sundaram Bluechip Fund?

Largecap stocks have consistently generated returns of 11 per cent, on a compounded annual growth rate (CAGR) basis over a 15 to 20 year period. This is what even bank fixed deposit returns would also have earned on their Fds 15 to 20 years ago. This is because interest rates tend to compound every quarter on bank deposits and hence the yields go higher, with a longer duration. So, the returns are not extra ordinary to say the least from large cap stocks.

The question that we ask ourselves is: should an investor invest in the Sundaram Bluechip Fund? Honestly, over a 5 to 10 year time horizon we do not expect large cap equities to generate superb returns. As in the past, it would be fair to expect returns of 5 to 10 per cent on an annualized basis. Had the NFO been available when the market had collapsed in March, it would have been a different set of returns altogether.

In fact, the indices have recovered almost 40 per cent from lows and hence the NFO will have to invest in largecaps at a higher price, leaving limited room for appreciation. Having said that the one problem that investors face is the limited choice of investment avenues.

Stock markets are overpriced with the Nifty one year forward p/e way above historical averages. On the other hand Fds in banks are offering an interest rate of 5 to 5.5 per cent only. Gold has already rallied 30 per cent in the last 1 year and it makes little sense to chase gold at such high prices. Investors are left with very limited investment options and hence the Sundaram Bluechip Fund could be considered for long term investment of 5 to 7 years.

Fund to invest in bluechip stocks

The Sundaram Bluechip Fund would be investing in companies with a solid management and companies that have strong competitive positioning & sustainable competitive advantage. The fund would also be looking at strong cash flow generation and other parameters like returns on capital employed.

Investment Plans of Sundaram Bluechip Fund

The fund would offer a regular and direct options, which would include the growth and dividend plan, which is almost similar to what most other mutual funds in the country are offering.