Cynics may call it a fall from grace.

Franklin India Bluechip's current out-of-form performance just got prolonged.

But, before you treat the fund the way BCCI jettisoned out-of-form captain Sourav Ganguly [Images], read on to understand why it has lost touch and why a Ganguly-like ouster is not yet called for.

Unlike cricket, where the batsman's ability to use his skills as per the playing conditions and quality of attack decides his form, an array of other factors play a crucial role in a fund's performance.

What has led to Bluechip's underperformance?

A fund manager needs more than just stock-picking skills to do well every time. For example, he needs the market momentum in favour of his fund's style.

And here lies the first reason for Bluechip's recent underperformance -- time has not been as good for large-cap stocks (the bread and butter of this fund) as it has been for small and mid-cap stocks. This has made Bluechip look like a laggard in a bull-run that is dominated by mid-caps.

While the not-so-favourable investment environment is one of the factors, one also has to accept the fact that some of the fund's investments have not helped much either.

One such example is the fund's overdependence on energy stocks in 2004 did not help. The fund also lost on its investments in HPCL [Get Quote] and BPCL [Get Quote]. The metal stocks it invested in failed to do well. Ditto for some of the service industry stocks.

From 1994 till 2003, the fund had an impeccable track record. Its performance was always above average (except for 1996) when compared to other diversified equity funds .

The trouble began in the second quarter of 2004 and continued with its poor performance for five successive quarters. The fund had a five-star* rating in 2004; it has now slipped to a three star* one.

(Ratings ranging from five stars to one star are determined by Value Research by taking into account the returns given by the fund and the risk taken to deliver those returns.)

Must you sell immediately?

We feel not.

Franklin India Bluechip remains a quality, stable and well-diversified fund with one of the best management leadership around. It has invested predominantly in large-caps.

Large-cap stocks usually demonstrate better resilience in a volatile stock market as they are well researched, constantly in demand and highly liquid.

The fund has a good track record over the long term, through the ups and downs of the market.

The fund has been a long term winner and, importantly, the same fund management team is still at the helm which has played a vital role in Franklin India Bluechip Fund's exceptional performance record.

Therefore, while there is no denying the fact that its under-performance has become a cause for concern, it is definitely not over for the fund yet. It may be some time, however, before the fund again performs with flying colours.

A peek into the future

Fresh investments can be avoided at this point of time.

Existing investors should watch it closely. The fund has shown some signs of revival in the past three to four months. But, if the fund continues to under-perform, it will be time to exit and look for better options.

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