Do investors always need to go for a diversified basket of assets? The answer to this would be that it depends on the size of the overall savings combined with the individual's goals. However, on the whole it can be said that if core investments are already in place, canny investors can also bet on their favourite sectors in search of better returns. That is the space for sector funds and one interesting area is the Fast Moving Consumer Goods (FMCG) sector. There is no denying the fact that pace of growth of the Indian economy combined with its population offers a huge market and offers enormous opportunities for FMCG companies.

ICICI Prudential FMCG is one among three funds in the market that look to exploit opportunities specifically available in the Indian FMCG sector. Launched in March 1999, ICICI Prudential FMCG is eyeing to generate long-term capital appreciation from a portfolio made up of companies, which benefit from the consumption boom in the Indian economy. It is an open-ended equity fund, which belongs to the genre of sector specific funds that can primarily invest in FMCG stocks and few others, with minimum exposure to debt.

This fund is ranked first in its category and has delivered an excellent performance in terms of returns over the long-term horizon; way ahead of benchmark index CNX FMCG. The fund has posted annualized returns of 52.04% and 34.79% over the last three and five years respectively in comparison with the benchmark index which has given returns of 24.26% and 13.30% as on Mar. 31, 2007. In the near term, the fund has shown marginal returns of 0.03% in last 6 months as against benchmark index, which has shown negative returns of 14.57% as on Mar. 31, 2007.

However, 2006 was not a good year for the fund as performance of the sector as a whole slipped after the stock market collapsed in May 2006. The collapse took off almost 28% out of the fund in a month. Soon after the collapse, the fund managed to recoup and recover the lost value. The fund has shown negative returns of 0.99% over a year in comparison with the benchmark index, which has given negative returns of 19.88% as on Mar. 31, 2007.

Since past performance is no guarantee and also not a determinant for future returns, the obvious thing is to look at to the prospects for the sector as a whole. The sector led by consumption boom will get benefit out of the government's focus on farm sector, which will enhance rural income and is a key driver for the sector. India's per capita consumption of almost all products is amongst the lowest in the world, which provides huge scope for all players in the industry. Rising income and increasing consumerism are the other driving forces. The reduction in excise on biscuits and instant mixes and duty reduction on edibles is a positive move in recent budget, which will provide upside for companies engaged in these products.

Speaking to myiris about prospects of the sector, PV Subramanyam, Financial Trainer & Advisor, said that the sector might perform very well in the next year. In addition, being a defensive sector; it can insulate the investor against some risks. "One of the biggest advantages that a small investor has in a mutual fund is that he does not run a liquidity risk. From a point of view of entering high priced stocks like Pantaloon and Gillette this is a far better route than doing direct equities," said Subramanyam.

The fund while picking up stocks pursue a growth oriented buying strategy with a prime focus on mid-caps; it also invests in large and small-caps companies. It follows a bottom-up stock selection strategy to choose its investments. Some of the fund's favourite stocks over the last year include ICI India, Marico Industries, Pidilite Industries, Gillette India, Godrej Consumer Products, Asian Paints and Proctor & Gamble Hygiene and Healthcare.

The fund manager takes long term view before investing in stocks so it is not that aggressive in churning portfolio. The number of stocks has come down over the past one year and now stands at 14. The top 5 stocks account for about 54.45%, while the top 10 stocks account for about 85.67% of the total portfolio. Besides consumer goods, the fund has also invested in a few other sectors such as textiles and retail, which presently account for 20.95% of the total portfolio size. The asset under management (AUM) of the fund has dropped by 32.87% to Rs 85.40 crore, over the last year. However, there was no major change in the cash component.

Though the growth opportunities and the macro factors continue to remain attractive for the FMCG sector, investors should be cautious before going in for investment and remember that the fund seeks long-term capital appreciation. Subramanyam says that prospective investors should be prepared to stay invested for a period of 3 to 5 years. He added that the more aggressive investors should go for lump-sum investments, while others can opt for an SIP.