ICICI Target Return Fund - Invest

Srikanth Shankar Matrubai


A rare NFO, which is good

ICICI has come with a New Fund Offer named ICICI Prudential Target Returns Fund, an Open Ended Diversified Fund. The objective of the Fund is to Generate Capital Appreciation by investing in equity/equity related instruments of BSE100 and, providing investors with options to withdraw their investment automatically based On Triggers as when and when achieved.

The fund offers investors an option to switch out their capital appreciation or entire investment when the fund reaches a particular target, preset at either at 12%, 20%, 50% or 100%. This will help the investor to book his profit and protect any downward fall.

A back testing carried by the AMC shows that a trigger @ 20% moved into even a normal savings account would have given a return of 14.92 on a Rs.10 NAV., whereas not using the trigger would have left your NAV at 10.04 inspite of the NAV having touched a high of 21.
(This Simulation is based on a Value of Rs.10 invested on 01 Jan 2006 till March 2009).

Comments:
This scheme will give comfort to first-time investors, who usually come when markets are at peak and then lose out money when they fall. This scheme will book profits regularly in a discipline manner. Profit booking in a disciplined manner is essential. Investors tend to become greedy when they see appreciation and become fearful during correction and this fund will eliminate such greed. The Trend seen in the last two years clearly shows that a bit of Active approach is essential even in Mutual Fund investments and this Fund addresses this need.

Positives :
1) The Trigger Mechanism will automatically ensure Rebalancing.
2) With Triggers, Returns are locked at regular returns and Value is preserved in the event of a Subsequent fall.
3) The fund intends to invest in Large Caps, which is a comforting factor.
4) The Fund is being launched after the Stock Market have seen a Big Correction and is Attractively Valued, thus the probability of the Fund achieving its 'Targets' is rather high.


Negative:
1) The biggest negative of the Fund is that due the Mandate, the Fund Manager is forced to Sell out Stocks as soon the Stated Target is achieved and may well miss Higher Returns if held.
2) There is no Guarantee that the Fund will meet its 'Trigger Target' if the Markets were to stay Range Bound to Negative.
3) In the Event of a Bull Run similar to 2 years back, than there is a risk of losing the Benefits of compounding Returns.


Recommendation:
The Fund should do well and one can invest going by the Fact that the Fund will be investing in Large Caps and the Markets too look attractive over the Next two years at least. The Fund may not give Huge Gains but does promise to protect your gains in the event of a market crash.

Invest with the Option of 20% Trigger Target and Switch to ICICI Liquid Plan - dividend Reinvestment Option.

One can consider investing in this Fund

Best of luck,
Srikanth Shankar Matrubai






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TAURUS ETHICAL FUND - AVOIDABLE NFO

Hello,
Taurus Mutual Fund has launched a New Fund named Taurus
The New Fund Offer has already open now and will close on 20 March 2009.
The Fund is particularly targetted at Investors who want to put their money in a Shariah-compliant instrument. The fund will make investments only in the shares of companies that are compliant with the dictates of the Shariah, which forbids ties with companies involved in banking, alcohol, tobacco, gambling, non-halal meat or pornography. As interest cannot be earned on investments made as per Shariah laws, the fund will not invest in debt either.


COMMENTS AND ANALYSIS :
New Funds are a strict no-no for me. And coming from a Fund House with a pathetic trackrecord, it is better to avoid the New fund Offer. The fact that Fund's stock universe is limited may also restrict its potential to deliver high returns. Better to stick to an existing Diversified Fund.

Best of luck,
srikanth shankar Matrubai





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JM BASIC FUND - A DISASTER

JM basic fund SIP

Dear Sir
My sip for jm basic fund(G)expires on 25 jan,it was from last one year.Should i continue or not.I have 8 diff. sip of 1000/pm and plannig for 10 year.Others are sbi Contra,hdfc prudence,hsbc equity,Magnum global,diversi power reliance,rel vision and growth,icici infra.All r growth option.I have to re-arrange portfolio,pl advice.
uday1972

SRIKANTH SHANKAR MATRUBAI replied
Dear Uday,
JM Basic Fund has been one of the Disasters of 2008. In fact, the JM Fund House itself has had a Disasterous Year in 2008. Almost all their Funds lost heavily, in fact more than the Benchmark and some Funds lost even 80%.

Their investment
approach too seems to be losing focus looking at thier portfolio. You are advised to STOP your sip in this Fund and Discontinue the same.
Regarding your other Funds, here is my take on each of them :
SBI Contra - Continue
HDFC Prudence — Continue
HSBC Equity — Continue
Magnum Global - Discontinue and switch to Birla Sunlife Equity Fund
Reliance Divesified Power - Discontinue and Switch your SIP to Fidelity Equity Fund
Reliance Vision - Continue
Reliance Growth - continue
ICICI Infra - Stop and Switch your SIP to ICICI Dynamic Fund

And your JM Basic SIP can be routed to a Better Looking and much more promising Sundaram Select Focus Fund.
BEst of luck,
Srikanth Shankar Matrubai,

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IDFC India GDP Growth Fund

IDFC has recently launched a New Fund Offer named IDFC India GDP Growth Fund.

The IDFC India GDP Growth Fund seeks to invest the assets in the sectors representing the three components of India's GDP viz., Agriculture, Services and Industry. The allocation to these levels of GDP will be in the same proportion as their contribution to the overall India's GDP, and will normally be revised on a semi-annual basis, or whenever the GDPgrowth estimates are revised.

COMMENTS AND RECOMMENDATION :

The Fund is innovative and aims to capture the Growth in India's GDP. The Fund would act as a Good Diversified Fund as it will be investing in Stocks in Sectors and Industries across market captilisation. The Fund Manager, Mr.Ajay Bodke has had a good expertise in managing Funds and has performed reasonably well. The Fund may a Good Pick for Long Term Investors.

The Fact that India's economy is relative insulated from the Global meltdown and that India is better positioned better than most countries makes Indian Markets attractive and India should better GDP numbers going forward. This in turn will help the Fund give good returns.

The Fund, however, may not find it easy to mirror the GDP. Besides, there are not many great performers in the agriculture sector and getting right stocks in optimum proportion would not be very easy. Also, not all the sectors of the economy would perform in a similar manner at any given point and hence the fund has to remain invested in a particular sector in a particular proportion and this is a negative of the new fund.

IN A NUTSHELL, THERE ARE MANY TOP PERFORMING FUNDS WHICH OFFER SIMILAR FEATURES AND HAVE A TRACK RECORD TO BOAST OF. RISK AVERSE INVESTORS WOULD BE BETTER OFF TO WAIT FOR THE FUNDS PERFORMANCE TO COME OUT AND THEN TAKE A CALL. OTHERS CAN TAKE THE SIP ROUTE AND INVEST IN THE FUND.

Best of luck,
Srikanth Shankar Matrubai


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POST SATYAM FIASCO, CONTINUE WITH SUNDARAM SELECT FOCUS??

One Guest by name RR asked,

Hi,

I would like to have views about Sundaram Select Focus after Satyam fiasco. The MF has an exposure of 25.38 crores(abt 3.26%) investments in Satyam. How much do u think MF would be affected by the downfall in Satyam price?
I have a SIP of 2k per month on it. Do you all think i should continue with the SIP?

Srikanth Shankar Matrubai advised ;

Dear RR,
Sundaram Select Focus has been a consistent performer both during Bull Runs as well as Bear Runs. The Satyam Shockers has left many Fund Managers stumped and Sundaram was not alone. And even prudent Fund House like HDFC, Big DII like LIC too had a Bigger exposure than Sundaram. However, note that nowhere is any information available to the latest holding. Everyone is relying on Dec 2008 holding. Many Fund Houses would/could have already sold as some Funds like ICICI have clarified.

The break up of Sund. select Focus`s portfolio `ll be available at the end of this month & u can check the same from fund`s as well as other websites

Almost all the MFs have dumped Satyam shares from their portfolio, yes due to sudden price erosion some effect on NAV is there but after exit from satyam, the MFs r redeploying the money in other stocks, which `ll help u to recover ur losses on account of value erosion in satyam. .

Also note, even if the Fund house has had an exposure to Satyam after the fiasco, its NAV would have already reflected the same and there is no use selling the Fund after the NAV has already gone down.
Above all this, you are investing through SIP, which will protect from the downside More than a LUmpsum investor.
My sincere advise would be that you should continue your SIP investment in the Fund, as Sundaram Select Focus Fund has been a Better Performer than most Diversified Funds at any Given time.
Best of luck,
Srikanth Shankar Matrubai,

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DBS CHOLA TAX ADVANTAGE FUND - AVOID

DBS Chola Mutual Fund has launched DBS Chola Tax Advantage Fund – Series 1. The fund is a 10 - year close ended equity linked
saving scheme, subject to a lock in for a period of three years from date of allotment.

The fund which opened December 19, will close on March 19. The objective of the scheme is to seek to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities and also enabling investors to get income tax rebate as per the prevailing Tax Laws and subject to applicable conditions. The fund, benchmarked against BSE 200 Index would invest between 80- 100% in Indian equities and equity related securities and 0% to 20% in money market instruments / debt securities instruments.

Sanjay Sinha, chief executive officer, DBS Cholamandalam Asset Management said, "this fund will follow 'value investing strategy'. Current market conditions favour this strategy as it limits the downside potential of these stocks. In addition to the tax benefit, a 3 year lock-in allows investors to realise a better potential for their investment."

The minimum amount for application during the new fund offering period will be Rs. 500 and in multiples of Rs. 500 thereafter.

MY TAKE :
Though the Fund House has been in existence for quite some time, it has just been an also ran with none of its schemes ranking among the Top 10. Sure, it has Sanjay Sinha in its rank who joined recently, but he will have a tough job ahead to prove himself in these volative times.
The Fact that your fund is locked in for 10 years also goes against this fund. You are better off by investing in Existing Proven funds rather than Putting in an Unknown Specie yet to prove itself. It is like a Known Devil is Better than an Unknown Angel.
AVOID.

Best of luck,
Srikanth shankar Matrubai
Bangalore


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Invest in Kotak Short Term bond

I recieved this letter from Kotak AMC and found it very interesting. May be it will be useful to you also. Here goes......
Dear All



“Opportunity does not knock, it presents itself when you beat down the door”. This seems to be the case in the Indian bond markets as well. The flight
for safety factor has led to government securities rally across the world reaching all time lows. The treasury rates across the world – esp developed countries like the US, Japan, UK, EU are so low (practically 0 in some cases) that the investor. The investor looking out for some yield on his/her investment has now started looking out for some quality assets - not as safe as sovereign though high grade assets in the corporate bond segment. US treasuries have rallied from 3.75% to 2% in 6 weeks !!! (currently at 2.17%). Global investors are increasingly buying into the view that in such a financial climate it would be safer to own a companys bond than its shares. BHP Billiton shares were down 5% on a trading day last week, but BHPs bond was trading marginally higher on the same day. With companies deferring dividend payment and preserving cash to pay its debt in time, global money has started chasing yields – albeit in a small manner



In India during the interest rate rally in 2000-2003, spreads between the 5yr corporate bond and 5 yr gsec had touched a low of 30 bps…Likewise for a 3 yr segment, the spreads had touched a low of 15 bps !!!!!



Case for investment in Kotak Bond Short Term



The above factors form the plinth for investment in our Kotak Bond Short Term. The fund is positioned to reap the benefits of carry as well as spread compression in the corporate bond segment of the fixed income market. The current spreads are at 300 bps in the 3 and 5yr segment – which is significantly higher compared to the spreads we witnessed in the previous rate rally. While we do agree that there is general risk aversion in the credit segment – quality credit (combination of PSU and Pvt) does pose a huge investment opportunity. Most PSU are either partly or wholly owned by the Govt of India and therefore quasi sovereign entities. The spreads therefore present an imminent compression theory going forward. While the spreads may not come off in a hurry, in the initial phase, these would act as high carry on the portfolio. Also the 2,3 and 5 yr yield are largely flat (yielding the same). With expectations of reverse repo cut going forward and easy liquidity in the system, this curve could steepen .i.e shorter end could rally at a faster pace than the longer end, leading to a curve steepener.



This is what we endeavor to capture in bond short term, where corporate bonds varying from 2-5 yr maturity is held. The average maturity is capped at 3 yrs, with 25% allocated to cash for trading calls and positioned at the shorter end of the yield curve. This combination makes it ideal for being recommended from a 1 to 3m perspective.



Investors having beyond 3 month horizon should continue to look at investments in long term gilt and bond funds



The top holdings of Kotak Bond Short Term are :- ACC – 9.5%, IDFC – 9.37%, Grasim – 9.28%, REC (Rural Electrification Corporation) - 9.25%, EXIM – 9.16%, IRFC – 9.93%. Current avg maturity is at 2.50 years with a portfolio yield of 9%. The fund is rated mfAAA by ICRA *


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BHARTI AXA TAX ADVANTAGE FUND

Yet another NFO, yet another Tax Scheme. The Bharti Axa AMC, which began operations in September 2008, has launched Bharti AXA Tax Advantage Fund, an open-end equity linked savings scheme.

This will be a diversified multi-cap fund. The fund won't be biased towards any sector or market capitalization. It also has a leeway to invest up to 20 per cent in debt and money market instruments.

MY TAKE
The fund house, being a new player, has a long way to go to prove its worth. At this point of time investor's have been extremely choosy about their investments. You can as well look at existing Well Performing Schemes Like Sundaram Tax Saver, Birla Tax Relief 96, etc.

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JP MORGAN INDIA TAX ADVANTAGE FUND

JPMorgan Asset Management India on Thursday launched its open-ended equity linked savings scheme (ELSS) – the JPMorgan India Tax Advantage Fund, which is benchmarked against the BSE 200 Index. The new fund offer opens on 18 December and will close on 16 January 2009.

The scheme is essentially an equity fund with a three-year lock-in period. The investment objective of the scheme is to generate income and long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities.

The scheme is eligible for tax deduction under section 80 C of the Income Tax Act.

Minimum initial application costs Rs. 500 per application and in multiples of Rs. 500 thereafter.
The fund is also the first green launch by JPMorgan Asset Management in the country. The attempt will be to minimise the use of paper by encouraging prospective investors to download all applicable literature from the website and print only as per specific requirement so as to ensure minimum wastage of paper.

Said Krishnamurthy Vijayan – CEO & whole-time director, JPMorgan Asset Management, "In a typical NFO, lakhs of application forms and other material is printed & distributed and less than probably 0.5% of them get utilised.

Imagine the number of trees we cut to run just one NFO. We must all become more conscious about this destruction. With this in mind, we decided that the JPMorgan India Tax Advantage Fund would be a green NFO."


MY TAKE :
JP Morgan has a unique way of assigning fund managers to its equity schemes. The AMC assigns four managers to each scheme. And like its previous two equity diversified funds, this fund will have four managers as well.However, looking at its existing schemes performance, this has not really worked well. And the brief history of this equity fund house does not make this new offer a compelling choice as it is difficult to ignore the existing 32 open-end tax saving funds, some of which have impressive track records.



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UTI DIVIDEND YIELD FUND - Not Just For Conservative Investors

First and foremost, UTI Dividend Yield Fund is a diversified equity fund. Thus, capital appreciation potential is the most important aspect while selecting a stock along with the expected dividend income. The highlight of the Fund is that it has a Good Performer not just in Market Downturns but even in Bullish times.
The Fund Manager, Swati Kulkarni, believes in sustainablility of cash flows and growth opportunities. She says, " We also look at the scalability of the businesses and management quality. Then of course we have to consider valuations to ensure that we buy stocks that have capital appreciation potential in the long term. Thus we take a complete view.

Our investment processes make it mandatory to meet the management of the company and maintain contact on a quarterly basis. So, certain small cap ideas, where we may not be able to have any regular contact with the management, will not be able to figure in our portfolio. "
The dividend yield is a criteria used to sharpen the focus by narrowing the investable universe to leave out certain opportunities which are risky at this point in time or not very attractive from a valuations perspective. The fund is essentially a bottom-up fund and it cannot really have a predominant top-down approach.
After staying underweight for the last three years, this fund has started increasing exposure to FMCG and pharmaceuticals. It is underweight on technology right now due to the concerns on the volume growth and impact of cross currency movements.In terms of large-cap exposure, there has been a conscious shift, given the risk aversion and rising impact costs, especially with respect to mid-cap stocks. It has a Large Cap allocation standing at more than 50 per cent.


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DSPBR AND AIG WORLD GOLD FUNDS - BEDAZZLING BEAUTIES

The equity market has finally seen a ray of hope and so have equity-linked mutual funds (MFs). After staying in negative territory for months on
Gold
end, the trailing one-month returns of most schemes have finally entered the positive zone.

While a majority of the equity schemes generated one-month trailing returns in the range of 1-6 % as on December 17, ’08, there are a few schemes whose returns are as high as 10-11 % for the same period.

However, the biggest gain during this period has been observed in the case of world gold funds. Currently, there are only two such funds in the country — DSP BlackRock World Gold Fund and AIG World Gold Fund — and both these funds have shown an outstanding recovery. While the former’s one-month trailing returns stand at a handsome 43%, the latter has managed to generate 35.2% during the same period.

These gains can be attributed to the outstanding recovery seen in the stock prices of gold mining companies across the globe. Over the past one month, the stocks of many of the gold mining companies in which these gold funds invested have generated high returns ranging from 48-70 %. These include stocks like New Crest Mining, Barrick Gold Corp, Newmont Mining, Lihar Gold and Randgold Resources, among others. The FTSE All Gold Mines Index and S&P 500 Gold Index have both returned about 65% during the period.

Gold funds are different from gold exchange-traded funds (ETFs) and should not be confused with the latter. Gold funds are MFs that invest primarily in the stocks of companies that are actively into mining of gold and other precious metals like platinum, silver and also diamonds. Gold ETFs, on the other hand, invest solely in pure gold. Since gold funds invest in equities of gold mining companies, their correlation with the equity market is much higher than that with gold bullion, and hence, they are known to move in tandem with the equity market.

Both gold and equity have gained momentum in the past month, despite the commonly known inverse relationship shared by these two asset classes. While on the one hand, the BSE Sensex has gained about 12.7% since November 18, ’08, on the other hand, gold prices in India have risen about 10% since then. If one were to analyse the returns on a global scale, international gold prices have gained about 17%, while the Dow Jones has increased about 5% over the same period. Hence, it is interesting to see these two asset classes moving in sync with each other, even though they had a high negative correlation over the past one year, at -0 .5.
While it has not been long since the first gold fund was introduced in India, its performance over the past one year throws up some interesting
Gold
trends. The country’s first gold fund gained immensely in the beginning of the current calendar year, when equity markets across the globe had begun to slide.

Gold funds and gold ETFs had both gained immense popularity then, as they were among a handful of products which generated positive returns in a highly negative terrain. However, the financial crisis that gripped markets across the globe also enveloped gold funds, indicating that gold funds are influenced more by movements in the equity market than by gold prices.

However, the two gold funds in India are not active schemes, but rather the feeder funds. Thus, instead of investing directly in stocks, these funds invest in mining companies through another fund, which is the parent fund incorporated outside India.

While DSP BlackRock’s gold fund is more than a year old in India, AIG’s fund was launched in the current calendar year and has just completed about six months. However, the parent funds of both fund houses are more than a decade old. While BlackRock Global Funds — World Gold Fund was launched in 1998, AIG PB Equity Fund Gold was initiated way back in 1992.



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BIRLA SUNLIFE INCOME PLUS - INVEST

A steady stream of lower-than-expected inflation numbers and falling commodity prices suggest that interest rates are likely to continue their descent from current levels. With the economy in slowdown mode, interest rate cuts may also be used to stimulate demand.

Investors seeking to take advantage of the appreciation in bond prices likely from the rate cuts should consider income funds for their portfolio. While the appreciation in gilt prices over the past few months may make gilt funds vulnerable to some price risk, bond funds may continue to benefit from the wide corporate bond spreads.

Investors looking for a one-two year investment can consider exposure into Birla Sun Life Income Plus, a long bond fund.

The fund invests in a mix of gilts and triple-A rated corporate bonds with a long maturity, offering both yields and trading opportunity. Birla Income Plus has consistently outpaced the benchmark over a three and five-year period.

Performance: The fund’s NAV appreciated by 8.7 per cent in the one-year period to November.

With the bond rally picking up over the past month, the fund’s one-year return has jumped to 23 per cent, outpacing the category average of 12 per cent, by nearly 11 percentage points. This sudden jump in return has lifted the three-year return (annualised) to 13 per cent and five-year return to 8.4 per cent.

Profile: The fund has been among the early ones to position its portfolio for falling interest rates.

With a change in manager in November 2007, the fund rejigged the portfolio to increase average maturity at the start of this calendar year. However, the subsequent spike in interest rates prompted the manager to reduce the maturity once again. Greater certainty about interest rate declines in recent months has allowed the fund to substantially lengthen its maturity profile to 11.55 years by November.

In the latest portfolio, government securities accounted for 67.8 per cent (maturity period 10-years plus accounted for 40 per cent) and other debt papers 26.5 per cent. Corporate debt paper was of high quality, with issuers such as Rural Electrification Corp, Power Finance and IRFC being the top exposures.

Fund facts: The fund was launched in October 1995. It has been managed by Mr Maneesh Dangi in the past year. The fund charges no entry load. There will be an exit load, however, of 0.75 per cent if investments are redeemed or switched out within 180 days.


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FIDELITY INDIA SPECIAL SITUATIONS FUND - INVEST

Investors with a high-risk appetite can consider buying in to units of Fidelity India Special Situations Fund. Our recommendation is underpinned by the fund’s adhered focus on investing in undervalued companies, with the key theme being selecting stocks that are out of favour or in special situations such as mergers, turnarounds and takeovers. However, the fund’s return will be highly dependent on the hit rate of each of those companies in ‘special situations’. This poses a higher risk than regular diversified funds.

As equity valuations have fallen significantly in recent times, leaving the stage ripe for the fund’s themes, an investment now could be a good entry point.

But given the fund’s contrarian and value-based approach, it may best serve as a good portfolio diversifier, as it may not be able to ape the returns of some of the large-cap-oriented diversified equity funds. And given the fund’s mandate to stick to ‘offbeat’ stock-picking strategy, it may also call for investors to have at least a three-year investment horizon, by which time the fund’s sector and stock bets may begin to yield returns.

Performance: Despite a prolific start in 2006, the prolonged fall in equities this year has pulled returns into negative territory. It has returned a negative 14.6 per cent since its launch, while its benchmark, the BSE 200, declined by 11 per cent in the same period.

But the fund’s one-year returns have been little better than its benchmark. It shed 52 per cent of its NAV during the period, mildly outperforming the BSE 200’s negative 54 per cent. This marginally superior performance can be explained by the fund’s portfolio, which mainly sports stocks of companies that hold either the ‘defensive’ or ‘value’ tag.

In addition, the fund’s disciplined stock-picking strategy, highlighted by the fact that despite the mayhem in the market it stuck to its sector, may also explain its performance. It has also bettered the benchmark even in the six-month and three-month time period.

Portfolio: The fund has throughout this year maintained its high aggregate exposure to sectors such as banks, software and pharmaceuticals. True to its mandate, the fund’s exposure to the otherwise favoured sectors such as capital goods and engineering has been quite low.

Large-cap stocks (of market capitalisation more than Rs 7,500 crore) currently account for over half of its portfolio value, while mid- and small-cap stocks make up 13 per cent and 27 per cent respectively. Further, its equity portfolio boasts many value and defensive picks.

Be it a high exposure to stocks such as SBI, Satyam Computers, ICICI Bank and Sun Pharmaceuticals or its 6 per cent exposure to the National Stock Exchange, the fund’s overall portfolio appears to leave sufficient scope for value-unlocking in the long-term.

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BIRLA SUNLIFE FRONTLINE EQUITY FUND

Leading From The Front
With risk controls well in place, this large-cap-oriented fund needs to be on your buy list to gain as and when market recovers.
The markets are in doldrums. Economies, global as well as the Indian, have slowed down and estimates for corporate earnings look bleak for near to medium term. Although there is talk of recovery in the markets, it’s uncertain when it will happen. Also, instead of waiting for the markets to fall further and thereby trying to time entry points, Outlook Money has always advocated a staggered approach to investing. When markets move upwards, large-cap stocks are expected to be the early gainers. A large-cap fund that merits a place in your portfolio is Birla Sun Life Frontline Equity Fund (BFE).

Launched on 30 August 2002, BFE is an open-ended diversified fund with major exposure to large-cap stocks. The fund is benchmarked to BSE 200 spanning across leading sectors and keeping the exposure well diversified.

Performance. One of the things that a better managed fund does is limit the fall in its NAV. BFE is one such fund that has not only delivered when the going was good but also limited the damage during bad times. Last six months have seen BSE 200’s value erode nearly 46.90 per cent. BFE scores high on containing risk. It has superior risk-adjusted return and has managed to limit its fall by about 38.97 per cent during the same period. The outperformance, says the fund manager, is largely due to better stock selection and avoiding weaker companies that are over-diversified.

BFE has been a long-time performer and has outperformed its benchmark index over all time periods and since inception. As on 31 October 2008, when the BSE 200 was able to manage a compounded annualised return of 4.65 per cent over 3-year period, BFE has managed 11.29 per cent compounded returns. Not bad considering the present extraordinary situation that is seeing sharp corrections and massive fallouts of NAVs in a small time frame. Also, the fund has managed to deliver what equity as an asset class is expected to deliver over this time frame.

Portfolio. As on 30 September 2008, the fund had a corpus of about Rs 400 crore with 63 per cent invested in large caps while 10 per cent in mid caps. In September 2007, the figures stood at 75 per cent and 20 per cent, respectively. By trimming exposure in large- and mid-caps, BFE has opted to increase its cash levels throughout 2008. From nil (including money market funds) in September 2007, the cash level went up to 15 per cent by May 2008 and to 21 per cent by September 2008.

Over the last one year, exposure to Reliance Industries, Bharti Airtel and ONGC have been upped. The top 10 scrips form almost 50 per cent of the equity portfolio and hence their performance will largely shape the fund’s performance. An upward move in the market is expected to be largely on the back of large-cap stocks.

One fallout of the recent meltdown has been that few sectors have been fully dropped from the fund manager’s portfolios or exposure in them has been heavily pared. With BFE, banking, petroleum and telecom are the preferred sectors as of now while construction and capital goods are two sectors where the fund looks to prune its exposure.

Even when many stocks are available at attractive valuations now, BFE’s fund manager still prefers to stick to companies with growth potential available at reasonable valuations.

Long-term investors of the fund have benefited and with low valuations as of now, the time to enter the market with long-term view could be around the present levels. BFE has been able to deliver returns higher than or in tandem with the market and keep its risk levels in check. Over longer periods, it has beaten the benchmark by a wide margin. Choose the systematic route to widen the gains over the long term.




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RELIANCE REGULAR SAVINGS EQUITY FUND

Quick To Grab Chances
Having performed well in the troubled markets, the aggressively managed Reliance RSF-Equity is ready for an encore.
Despite being India’s largest fund house, Reliance mutual fund (MF) was conspicuously absent from the equity-diversified category, up till now. Its two most successful broad-based equity schemes were in the large-cap (Reliance Vision; RV) and mid-cap (Reliance Growth; RG) space, apart from a couple of well-performing sectoral schemes. But that’s changed now and Reliance RSF-Equity, which recently completed three years and is the latest addition in Outlook Money’s fund selection OLM 50, is an option that warrants your attention.

The scheme. Reliance RSF-Equity (RRSFE) is a diversified equity scheme that invests across all market capitalisations. Like RV and RG, this scheme is opportunistic and is quick to get in and out of companies. The scheme is benchmarked against BSE 100 index. Like all Reliance MF equity schemes, this one too uses cash aggressively. As per the October-end portfolio, 30 per cent of its corpus is in cash.

Returns. RRSFE has performed well over a longer period of time. In our latest fund rankings (The New OLM 50, 19 November) RRSFE is one of the toppers in the diversified equity category. Despite being aggressively managed, it kept its volatility in check and was among the least volatile in its category.

To check the scheme’s consistency, we looked at its rolling returns; an average of one-year returns over a three-year time period. With returns of 38.3 per cent, it topped the charts here too. Thanks to its aggressive management and its ability to pick the right mid- and small-cap scrips, RRSFE outperformed the category in 2007 with returns of 92.29 per cent against a category average of 57.24 per cent.

One of the reasons behind its performance is its corpus size. Although a small size is not as big a hindrance to a diversified equity scheme as it is to a typical mid-cap scheme, it does help as the fund manager can take small exposures in smaller-sized companies and still make a difference. At Rs 576.1 crore (the scheme’s current size), we feel it can continue its good performance over a longer period of time.

Portfolio. RRSFE prefers to maintain a crisp and tight portfolio in times when the fund manager feels that the markets would move in one direction, either up or down; it has consistently held 25 to 30 scrips on an average. In uncertain times, the fund manager reduces scrip concentration and broadens the portfolio.

The portfolio is aggressively managed. During the height of the market run-up, it had 58.2 per cent in small-cap scrips (with scrips less than Rs 3,000 crore market capitalisation). Its top scrip for many months at the beginning of the year was Pratibha Industries, an infrastructure sector company with a small market cap of Rs 101 crore. In December 2007, RRSFE had 13 per cent of its corpus in the company’s scrip.

The fund manager does not hesitate to churn the scheme’s portfolio. For instance, between June and December 2007, when the market jumped by 39 per cent, RRSFE had just five common scrips between its December 2007 and June 2007 portfolios out of a total of 25 scrips as per its December-end portfolio.

But the scheme’s aggression has paid off. For instance, it sold off its entire holding in L&T as early as September 2007 when infrastructure companies were trading at sizzling valuations. The fund manager believes that the worst in the capital goods sector may not be over yet as the order books of several companies in this sector may have to be scaled down. The fund’s top sectoral allocation is in banking, software and pharmaceuticals sectors.

The scheme is ideal for an aggressive investor looking for all-round action.

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IDFC TAX FUND - AVOID

IDFC AMC which manages assets worth Rs 8,686 crore across 78 schemes (as on 30 November) has launched IDFC Tax Advantage (ELSS) Fund an open-ended equity linked saving scheme. This fund will invest in equity and equity related instruments
The IDFC Tax Advantage (ELSS) Fund with a minimum subscription of Rs. 500, will not only help investors avail of a tax benefit, but also seek to generate long term capital growth from a diversified portfolio of predominantly equity and equity related securities. The scheme will invest in well-managed growth companies that are available at a reasonable value and offer a high return growth potential.
Mr. Naval Bir Kumar, Managing Director, IDFC Mutual Fund says “We are happy to offer The IDFC Tax Advantage (ELSS) Fund to investors who are looking for a tax break as well as an easy and affordable way to take advantage of the growth potential of equity funds.” He continues, "The scheme will invest in well managed growth companies that are available at a reasonable value and offer a high return growth potential to investors,"
Idea distiller: IDFC does not have a tax plan as yet. As the last three months of a financial year see a lot of people rushing to invest in tax-saving schemes, it is an ideal time for IDFC to push an ELSS.
MY TAKE ON IDFC TAX FUND:
IDFC's equity funds have a rather brief history. Invest in this fund only if you want to go in for a low-cost NFO rather than an existing scheme with a higher NAV.
It is better to invest in a fund that has earned enough to reach a high NAV, some of them with compelling track record and a well defined portfolio characteristics and thus ensures dividends for the period that you are locked in, and has a fund manager who has excelled in managing assets across all cycles of the market.
In a nutshell, AVOID

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TEMPLETON INDIA PENSION PLAN (TIPP)

AUM: Rs 143.2 crore

Current NAV: Rs 41.40 (Dec 10, ’08)

52-Week High NAV: Rs 55.70 (Jan 7, ’08)

52-Week Low NAV: Rs 39.40 (Nov 20, ’08)

Fund Managers: Anand Radhakrishnan, Sachin Desai, Vivek Ahuja


Following in the footsteps of UTI’s pension fund, Franklin Templeton launched its pension scheme in March 1997 and till date, is the only private sector fund house to have launched such a scheme. The fund’s investment structure is similar to that of URBP with a 60:40 investment ratio in debt and equity, respectively.

PORTFOLIO:

Investors may find it surprising to see a debt-oriented balanced fund having an investment of over 30% in equities, despite the adverse market conditions. While the fund’s equity exposure has declined from 40% to 30% in the past one year, given the market volatility in ’08, even 30% equity exposure appears to be on the higher side. However, the management has aptly justified its strategy of having an adequate equity exposure.

Since the fund is meant only for longterm investors, the management feels there is no point in changing exposures to different asset classes based on short-term market movements. At the same time, the fund has ensured adequate liquidity and relative safety for its equity exposure by incorporating large-cap stocks in a very high proportion.

The fund’s equity investment in largecaps is more than 85% at any given point of time. As far as its debt portfolio is concerned, the fund focuses on nonconvertible debentures with minimum exposure to securitised debt.

PERFORMANCE:

If one compares the performance of this fund vis-à-vis URBP, over the long term, TIPP clearly has an edge over its competitor. The fund has a history of outstanding performances, beating the category average on almost all occasions since ’03, when it returned a whopping 42.2%, vis-à-vis the category average of 27.6%. While in ’05, TIPP’s 16.5% returns did lose out to URBP’s 21.8%, it recovered in ’06 by generating almost 19% returns, even as the category average stood at 14%.

TIPP continued its feat in ’07 as well. However, in ’08 so far, its performance has lagged that of URBP. Its year-to-date trailing returns as on December 11, ’08 stand at - 24.6%, against the category average of - 10.7%. In the past six months alone, the fund has lost about 13%.

A high equity exposure may be construed as one of the reasons for this decline. But since TIPP has a very long-term investment mandate, a healthy performance in future can sideline these short-term hiccups.

INVESTORS’ DIGEST:

Considering its long-term investment mandate, TIPP has stringent exit rules, which may be stricter than those of URBP. TIPP mandates a compulsory three-year lock-in period and while one can redeem investments post the lock-in period, investors have to pay a penalty of 3% as exit load.

The maturity period for the scheme is 58 years age and the exit load is waived off only if the investment is redeemed after attaining this age.

The fund also calls for a minimum investment of Rs 10,000 during the period of investment, failing which, the exit load can be as high as 10% at the time of redemption. But this load may be waived off under spe cial circumstances like serious illness, education requirement, housing necessity, financial
hardships, loss of job, bankruptcy etc, sub ject to submission of proper documents.

TIPP has been quite regular in paying dividends to those who have opted for the dividend option. It declares dividends annually by the end of the calendar year; it has already announced a dividend of 12% for ’08. Just like any other pension fund, TIPP is also eligible for tax benefits under Section 80C of the I-T Act.

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UTI RETIREMENT BENEFIT PENSION (URBP)

UTI RETIREMENT BENEFIT PENSION (URBP)

AUM: Rs 435.3 crore

Current NAV: Rs 17.90 (Dec 10, ’08)

52-Week High NAV: Rs 22.10 (Jan 7, ’08)

52-Week Low NAV: Rs 17.20 (Oct 27, ’08)

Fund Manager: Amandeep Singh Chopra


THE oldest fund house in the country can be credited for pioneering a pension plan that goes beyond the conventional 100% debt-based investment. Launched in December 1994, this fund is one of the oldest in the category of debt-oriented balanced funds.

Notwithstanding the fact that an average Indian investor seeks safety above all other parameters when it comes to saving for retirement, URBP was launched to provide both safety and returns — through an appropriate mix of equity and debt in the portfolio. Given its equity exposure, one can argue that this fund is slightly riskier than other conventional ‘retirement’ saving products.

However, investors can take relief from the fact that over the long term, it is difficult to lose money in an equity investment. And since this fund is aimed at pensioners, only investors with a horizon of at least 10 years are advised to put money
in this fund.







PORTFOLIO:

URBP’s allocation in debt and equity cannot exceed the ratio of 60:40 respectively. While the fund has often tried to maximise its returns by utilising its equity limit to the fullest, the recent changes in the stock market have forced it to rejig its portfolio.

Its equity composition is down from over 39% in December ’07 to 20% as in November ’08. Nearly two-thirds of its equity portfolio comprises large-cap stocks. Also, the equity portfolio appears to be highly diversified and currently has about 29 scrips.

On the debt front, the fund has exposure in government securities, non-convertible debentures and securitised debt. Since the fund manager is anticipating further reduction in interest rates, the fund has refrained from taking exposure in banks’ certificate of deposits, which are of a shorter duration.

Instead, it has increased investment in securitised debt. Its exposure in these papers has increased from 10% to more than 25% in the past one year. The fund is currently strategising its portfolio in favour of long-term securities to cash in on falling interest rates.

PERFORMANCE:

Since its launch, the fund has generated about 10% CAGR returns , which makes it an average performer among debt hybrid funds. After posting a commendable performance in ’05 with annual returns of about 22%, the fund slipped in ’06, generating just 9%. The average returns of debt hybrid funds were over 13% then.

But URBP managed to improve its performance in ’07, generating an annual return of 22.7% — a tad higher than the category average of 21.2%. URBP has been able to put up a better show in ’08 vis-à-vis its competitor TIPP, but has failed to beat the category average. The fund’s trailing year-to-date returns as on December 11, ’08 stood at -17 .5%, against the category average of -10 .7%.

INVESTORS’ DIGEST:

Investors who want to invest in mutual funds only to generate quick and high returns should keep away from this fund. URBP is meant only for those seeking some income, post retirement. Since the scheme targets only long-term investors, its exit load structure is designed to deter investors from redeeming their investments earlier.

Thus, exiting from the scheme within one year of investment will call for an exit load of 5%, redemption within 1-3 years from the date of investment will attract an exit load of 3%, while redemption after three years will attract a uniform exit load of 1%. The exit load is waived only if an investor redeems the investment after maturity, i.e. after attaining 58 years of age.

While most long-term funds declare regular dividends to give periodic sums of money to their investors, URBP instead declares bonuses. This is done with an intention to save on dividend distribution tax. The fund has declared bonuses in the past at intervals of a little over a year, but is yet to declare bonus for the current financial year. Investment in this scheme is also eligible for tax deduction up to Rs 1 lakh under Section 80C of the Income Tax Act.

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Fidelity Equity Fund - HOLD

Dear all,
Fidelity Equity Fund is "go anywhere" fund. The scheme endeavours to invest across the market capitalisation range, and seeks to identify trends ahead of the markets to generate returns. The scheme follows a bottom up approach towards stock selection, and looks to include a number of stocks in the portfolio to mitigate risk, which maybe as many as 75 stocks in a month as per the offer document.
Fidelity Equity Fund with average Assets Under Management (AUM) at around 1982 crores is among the Largest Funds in the Indian Mutual Fund Industry. It has been a steady performer since inception. It has always been in the top quartile within Diversified Funds category. Its 1 year performance has been, as you can expect, nothing to rave about. It is down by 51% but better than the Category Average of -56%.
The Fund has had a policy of having 60-80 stocks in its portfolio since inception. While many feel that this may result in overdiversification, what is noteworthy is that the fund is concentrated enough in large cap with large cap accounting for more than 65% of its portfolio and with no single stock exceeding 5 per cent except for Reliance at 7%.
Its top ten holdings are

Reliance Industries 7.34
SBI 4.56
HDFC 4.19
Infosys Technologies 3.95
B H E L 3.72
Bharti Airtel 3.34
ICICI Bank 3.10
I T C 3.04
Hindustan Unilever 3.04
Cipla 2.87

The diversified investment strategy is reflected in its sector allocation as well, with the top three sectors accounting for a little more than a third of the portfolio. Holdings in each sector include 7-8 stocks. Fidelity Equity aims to focus on companies that are in an investment phase, that are set to benefit from domestic consumption and those businesses that are internationally scalable. Going by the quarterly and half-yearly disclosures, the fund seems to have consistent investment views.

Going by the portfolio and its investment strategy, the fund appears to be conservative and well suited to risk-averse investors. The diversified spread appears to have come in handy during highly volatile market phases, including the recent one.
In recent months, despite the widening valuation gap between large- and mid-caps, mid-cap allocation has remained at about 25 per cent. This large-cap bias may have reduced the fund’s vulnerability to the recent market meltdown. Banking occupies the top slot in the portfoliothe fund has had a bias towards banking since the time of its launch, expecting the sector to benefit from the ongoing capex of Indian companies. In recent times as well, despite fears in the market that hikes in interest rates would hurt profitability, banking continues to be the top sector in its portfolio.
Fidelity Equity Fund has since its inception been my favourite. I recommend you to HOLD the fund, if you do not own, you sure should add the fund to your portfolio. The fund should outperform its Benchmark comfortably in coming years.
Best of luck,
Srikanth Shankar Matrubai,
Bangalore
www.goodfundadvisor.blogspot.com








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UTI Gold-Equity Fund

Mr.Sridhar wrote
"sir, I like your blog goodfundadvisor very much. Can you please throw light on the new fund UTI Wealth Builder Fund which has a combination of Gold and Equity"

SRIKANTH SHANKAR MATRUBAI replied :
Dear Sridhar,
UTI-Wealth Builder Fund - Series II, is an open-ended equity oriented scheme. The objective of the Scheme is to achieve long term capital appreciation by investing predominantly in a diversified portfolio of equity and equity related instruments along with investments in Gold ETFs and Debt and Money Market Instruments.
The fund aims to invest about 65% in equities and 35% in Gold ETFs and debt instruments.
This combination of equity, debt and gold is an innovative scheme and looking at the asset allocation and large cap tilt, it should be a conservative offering with low volatility.
Gold has been one asset that has been counter-cyclical in nature and hence an ideal asset in portfolio diversification.
Thus this fund will be a Low risk and Low Return Fund as it be investing mainly in Large Caps.
This Fund is for Ultra Conservative Investor with a view to have slight exposure to Equities. Sure, invest in this fund, if you want to have a Low Risk Low Return Fund. I do not expect this fund to give you returns more than 12% on an average. Even in Super Bull Market, the fund could give a max of 15-18% return.
Instead you can consider investing in Good diversified Equity fund and some allocation to Gold ETfs.
Best of luck,
Srikanth Shankar Matrubai,
Bangalore