FIIs are finding Indian mutual funds so attractive

Just as individual investors in India have started to accept mutual funds (MFs) as viable saving options, MFs have started warming up to an unorthodox category of bulk investor, the foreign institutional investor.

Several funds have announced discounted entry loads for FIIs. The FIIs find it convenient to step up exposure to companies where cumulative or individual FII holdings have hit the permitted ceiling.

FIIs are now believed to be routing their money into the stock markets through local mutual fund schemes and exchange traded funds. This interest of FIIs in local funds is being attributed, among other things, to their need to take indirect exposure to stocks that have already reached the maximum permissible FII investment limit. Domestic MFs seem to be running the assets under management (AUM) race. This growing relationship may not be very good news for the small investor.

The increasing interest of domestic funds in FII money is evident from the various addendums to the offer document filed by funds relating to loads for investment by FIIs and their sub-accounts. There is no firm estimate as to the proportion of FII money in total assets under management of the fund industry.

But, fund managers and industry watchers agree that the interest of FII and MFs in each other has picked up. ‘Some money has come in the last few months’ said the CEO of a fund not wanting to be named. ‘FIIs are looking at ETFs and other funds for investing money’ said Sanjay Sachdev, former CEO Principal PNB Asset Management and currently country manager India & regional manager, Shinsei Bank Group.

There is, however, no estimate to the scale of investment so far. ‘FII holding in fund AUM is less than 1%, but we will know better once figures are collated in March’ says A P Kurien, chairman AMFI. R Sukumar, CIO Franklin Templeton India too feels that the proportion is not very high. ‘it is highly unlikely to exceed 5%’ he says. Kurien also disputes that there is a sudden spurt and believes that the proportion is not much higher than before.

The question however is why FIIs are finding Indian mutual funds so attractive. The reasons are many and varied. While Sukumar feels that demand from India dedicated fund-of-funds (FoF) and offshore feeder funds too is technically being counted as FII money, Kurien avers that FIIs are finding Indian fund management at par with world standards.  While these reasons are valid, the more important reason seems to be the need to take further exposure to companies where FII investment limits have been reached. ‘FII investment in a ETF is not counted for the purposes of determining investment limits’ says Sachdev. ‘Indirect investment through funds enables FIIs to go beyond the limits.

This is also the reason why there has been an increase in FII interest in the derivatives segment’ says the fund CEO not willing to be named. Sukumar however feels that not all funds are permitting this. ‘Some second or third rung funds may be doing it, not the top rung ones. Moreover, investor tags are not important, there can be quality FII money too. But, we are not marketing our funds to FIIs ’ he says.

So, where does this leave the retail investor. A growing FII-MF relationship could be a cause for worry, condsidering how enamoured funds have been with corporate money for much of their history in India. Kurien disagrees, ‘corporates are investing, so what is wrong with FIIs investing in domestic funds’ he questions.
Sanjay Sachdev however feels that it is the race for assets which is driving funds to FIIs. Considering the renewed retail investor interest in mutual funds, it would be in the interest of the MF industry to keep the faith.

Get more information

Invest in Standard Chartered Mutual Fund

Standard Chartered Mutual Fund has launched Standard Chartered Arbitrage Fund (SCAF), an open-ended equity scheme that plans to take advantage of the differential pricing between the cash and the future markets and in the bargain make some risk free profit.

Experts believe that it is a good option for conservative investors who wish to improve their portfolio returns without changing their risk profile. However, there are some concerns:
 
Lack of arbitrage opportunities

Investment expert Sandeep Shanbhag feels that while the idea of profiting from the differential pricing between the cash and the future markets seems good on paper, the main problem remains lack of such arbitrage opportunities. Without abundant opportunities, the returns of such funds suffer, he added.

However, Rajiv Anand, head (investments), Standard Chartered Mutual Fund believes that the arbitrage potential available in the market is a function of:

• Interest rates / money market rates, and
• Underlying equity market sentiment

As the equity market sentiment improves, the arbitrage opportunities available in the market increases and vice-versa, he added.

Expenses weigh heavy

Experts feel that the transaction cost and fund management charges in this scheme are likely to impact its returns. Shanbhag  said, "The four legs of each transaction (buy in cash, sell in futures, selling in cash and buying in futures) entail transaction costs.

"Coupled with fund management fees and administration costs, such funds would be hard pressed to beat the risk free rate of 8 per cent p.a. that is otherwise available on RBI Bonds or FDs".

Anand differs as he says, "Transaction costs are part of the entire arbitrage trade. The biggest component of the transaction cost is STT (Securities Transaction Tax) and is applicable to all segments of the market."

Meanwhile, he highlights that the key advantage of investing in Arbitrage funds is that it is an "equity" fund as per tax laws and hence dividend distribution tax is zero and long term capital gains is also zero.

"If you compare this with a fixed deposit for example where you are paying full tax as per the investor's slab, these funds effectively strip out the interest component from the equity market through market neutral trades and at the same time give you the tax benefits of equity funds. Hence the benefit relative to other fixed income instruments can be significant", he added.

StanChart's arbitrage fund v/s existing arbitrage funds

Investment advisor Hemant Rustagi feels, "There are some existing open-ended schemes that have similar investment objectives and strategies and have done well. There may not be a great advantage for investors investing in this scheme compared to the existing ones."

However, Anand clarifies that, "Not all of the existing funds carry the concessional tax status of an equity fund. Those that have the concessional tax status do not provide any day liquidity that is available under this fund." 

Conclusion:

Experts believe that Standard Chartered Arbitrage Fund is a good option for conservative investors who are looking to improve returns on their portfolio without changing their risk profile. Besides, the scheme is tax efficient, as an investor in this scheme will enjoy the tax benefits that are available for investing in equity funds.

Get more information

All about Fund of Funds (FOFs)

Fund of funds (FoFs), as the name suggests, are mutual fund schemes, which invest in other mutual fund schemes. There have been a few such FoF schemes in the past and recently too some new FoFs have been launched.

Does it make sense to invest in FoFs? Let us look at the various issues associated with FoFs -- some are positive and some negative.

Diversification (+ve)

Just as a mutual fund scheme offers diversification by investing in various equity scrips, a FoF offers diversification by investing in various MF schemes. Experience of the past few years shows that the top performers are usually different from year to year. However, there are certain funds, which have been consistent performers.

Therefore, a FoF that invests say in 4-5 of the top ten funds today, is expected to yield better returns than say investing in the top performing fund of the day.

Secondly, you get a chance to diversify across various fund managers and investing styles.

Thirdly, even if a fund manager quits one AMC and joins another whose fund you already own in the FoF, you are not affected by this constant movement of the fund managers.

Convenience (+ve)

As a prudent investor, one would like to diversify one's investment across both equity and debt funds. By choosing a suitable FoF, you get a chance to invest across different class of funds with just one investment. Thus, it becomes very convenient for investing and monitoring.

Also, suppose you wanted to invest in 5 equity funds and 5 debt funds. Assuming each fund has a minimum stipulated investment of Rs 5,000, you would need Rs 50,000. In a FoF, Rs 5,000 would do the job.

Rebalancing (+ve)

This is a great benefit that a FoF offers - in fact 2 benefits as we see later.

Suppose you have Rs 100 to invest and your debt-equity allocation is 30:70. After one year the Rs 30 in debt has grown to say Rs 32.40 @8% p.a. and the Rs 70 in equity to Rs 94.50 @35% p.a. The debt-equity allocation has now become 25.5:74.5.

Thus the portfolio has become riskier than your profile of 30:70. Therefore, you need to sell Rs 5.67 of equity and put in debt to bring back the debt-equity ratio to 30:70.

Conversely, say after one year the debt had grown to Rs 32.40 @8% p.a., but equity portion suffered a loss of 20% and reduced to Rs 56. The debt-equity ratio changed to 36.7:63.3. Now you need to sell Rs 5.88 from debt and put into equity.

This rebalancing will involve capital gains tax, if you do it by holding individual MFs. When a FoF does it, there is no long/short term capital gains tax, which can be as high as 30% on short-term capital gains in a debt-fund. This is a big benefit.

The second benefit that FoF rebalancing offers is a psychological one. Usually people don't sell when the markets are rising and don't buy when the markets are falling. Yet this is exactly what one should be doing. FoF does it automatically (and it usually can be in your long term interest).

Higher costs (-ve)

A FoF charges 0.75% annual management fees. This will be over and above the annual management fees of the MF schemes it will invest in, which are typically 2.5% for an equity MF and 1.5% for a debt MF.

Thus the effective cost for you works out to around 3.25% and 2.25% for equity & debt MF respectively.

Single AMC FoFs (-ve)

Most FoFs were, till recently, not true FoFs. They invested only in the different funds of the same AMC, which promoted the FoF. Only recently, some FoFs have been launched which will invest across different AMCs and hence will be truly diversified.

Higher Tax (-ve)

As per the present tax laws, equity FoF does not enjoy the benefits available to a normal equity fund. Therefore, if one invested in an equity FoF he would be liable to pay dividend distribution tax of 14.03% or LTCG tax of 10% (without indexation), which is otherwise NIL for a normal equity MF.

This higher tax can significantly reduce the post-tax returns.

Since the advantages and disadvantages are quite varied, the investors would have to assess their individual situation in the light of these factors and then take a decision as to whether FoF suits them or not.

Also, one should check the costs and the close-ended nature (thus not giving an investor a chance to do SIP), when investing in new FoFs.

Get more information

Top performing funds globally on five year basis

Two domestic mutual fund schemes -- Reliance Growth and Reliance Vision -- managed by Reliance MF have emerged as the two top performing funds globally on a five-year basis, the data available with international fund intelligence agency Lipper shows.

According to Lipper, Reliance Growth and Reliance Vision topped the list of 20 best performers from a global universe of open-ended equity funds based on their five-year performance till October 31.

Reliance Growth Fund has given compounded returns of 71.39 per cent per annum, while Reliance Vision Fund has given return of 68.16 per cent over the past five years in the US dollar currency, the Lipper data shows.

The two schemes have also emerged as the top performers among all the domestic open-ended equity schemes based on their five-year performance as on yesterday, data available with Association of Mutual Funds in India (AMFI) reveals.

Reliance Growth tops the chart with a return of 69.01 per cent as on November 15, followed by Reliance Vision at the second position with a five-year return of 66.03 per cent.

Magnum Contra, managed by SBI Mutual Fund, is at third position with five-year return of 60.83 per cent, followed by Franklin India Prima and Magnum Taxgain with returns of 60.83 per cent and 59.85 per cent, respectively.

Birla Sun Life MIP (Monthly Income Plan) tops the list of open-ended debt schemes with five-year returns of 12.15 per cent, followed by FT India MIP at the second position with a return of 12.11 per cent.

Reliance Mutual Fund, which is owned by Anil Dhirubhai Ambani Group company Reliance Capital, manages Rs 31,572 crore (nearly 7 billion dollars) with over 2.3 million investors as on October 31.

Get more information

Infrastructure funds outperformed their benchmarks

Mutual fund schemes investing in infrastructure and related sectors have largely outperformed their benchmarks in the past one year. However, fund managers of these schemes may struggle to sustain this performance going forward because of the effect of higher base and pricey stock valuations.

These funds have delivered returns of 63-76% in the last one year, while the indices to which these funds are benchmarked have risen 56-57%. This outperformance has been due to the steep rise in several key shares in these sectors.

While these funds, in theory, are termed “infrastructure funds”, they more or less play the role of diversified funds rather than themes, which enables them spread the risks in comparison with sector funds. Infrastructure funds generally invest in stocks related to capital goods, construction, roads, power, oil & gas, engineering etc.

ET takes a look into the performance of five such funds, which have been in existence for more than a year, including DSP Merrill Lynch’s TIGER Fund, UTI’s Infrastructure Fund, Prudential ICICI’s Infrastructure Fund, Tata Mutual Fund’s Infrastructure scheme and Sundaram BNP Paribas’ CAPEX Growth Fund.

Among performance highlights, Prudential ICICI’s scheme has been the best performer of the lot, returning approximately 76% in a year, as per data available on Value Research.

Sundaram’s CAPEX is the only fund, which has underperformed its benchmark, though it has registered returns in line with other related schemes. The scheme has returned roughly 64% since last year, Value Research said. However, BSE’s capital goods index, against which it has chosen to compare its performance, rose 77% during the period.

Reasons Srividhya Rajesh, fund manager of Sundaram’s CAPEX, “The fund is thematic and has a focus compared to other such schemes, which have opted for wider investment options. Also, we had 10-15% cash after the May crash, which is negligible now.”

Out of the five funds, the construction sector has the highest weightage for four schemes, followed by engineering and energy. L&T, BHEL and Grasim Industries find a place in such schemes of most of these fund houses.

Going ahead, fund managers choose to stick their bets to shares in road, construction and power equipment companies given their visibility in earnings enabled by a strong growth in order book positions. Also, with the government planning huge investments to develop infrastructure in the country, these companies are expected to have sustained order book inflows.

While analysts remain positive on their earnings prospects, there are concerns about valuations, considering the cyclical nature of the business. “These stocks are bound to command a premium in valuations (compared with the broader market) because of earnings visibility,” said Mr Rajesh, while adding that these funds would continue to outperform the broad market, but may not replicate this year’s returns.

Get more information

Fidelity Fund launches new Cash Fund

 Fidelity Fund Management Private Ltd has launched Fidelity Cash Fund with a credit risk rating of MfA1+ from Icra, which indicates highest-credit-quality short-term rating assigned by ICRA to debt funds. The Fidelity Cash Fund is an open ended liquid scheme that aims to generate reasonable returns with lower volatility and higher liquidity through a portfolio of debt and money market instruments. Subscriptions will be open during the NFO period from November 20 - 22, 2006 and thereafter for ongoing purchase and redemptions from November 29. Sameer Kulkarni is the fund manager of the Fidelity Cash Fund, which is benchmarked to the CRISIL Liquid Fund Index.

The Fund will be managed on the basis of Fidelity’s global fixed income investment philosophy, which combines its research on markets, sectors, yield curves and individual bonds with highly focused trading skills to build “multi strategy” portfolios in a way that deliver consistent returns.

The Fidelity Cash Fund will have retail, institutional and super institutional plans. Each plan will offer growth and dividend options. The minimum initial investment for the Institutional Plan is Rs 1 crore while the Super Institutional Plan requires a minimum initial investment of Rs 25 crore. For the Retail Plan, the minimum initial investment is Rs 5000. The Fund has no entry or exit loads.

Get more information

Value Mutual funds ride high

 Surprise! internet and telecom stocks are suddenly enjoying a resurgence. Double surprise! Among the big beneficiaries of the rally have been value mutual funds, which until very recently would never have gone near a technology stock.

As the US stock market has embarked on a strong advance since mid-year, the long-depressed Nasdaq Composite Index has played a starring role. The index, 11 of whose 12 largest components are tech stocks such as Microsoft, Intel and Dell, climbed 21% from July 21 through the middle of this week, including dividends. That eclipsed a 13% total return for the S&P’s 500 Index and a 14% gain for the Dow. While the Dow has been hitting record highs and the S&P 500 has climbed to a six-year peak this week, the Nasdaq remained more than 50% below the highs it reached in ’00.

Well, if a particular group of stocks is down, that doesn’t mean it’s out. In keeping with their long tradition of bargain-hunting among despised and neglected sectors of the market, several prominent managers of value funds began buying tech stocks a year or two ago. That put them in good position to reap the rewards of the Nasdaq revival.

No surprise to find growth-minded funds such as the Pin Oak Aggressive Stock Fund (largest holding: Cisco Systems) and the Fidelity OTC Portfolio (largest holding: Google) near the head of the pack with gains of 28% and 25%, respectively, since July 21. But look at some of the others keeping them company: the Longleaf Partners Fund, up 19%, the Oakmark Select Fund, up 16%, and the Legg Mason Value Trust, up 15%. Longleaf Partners’ largest holding, at last report, was Dell. Oakmark Select had good-sized stakes in both Dell and Intel. Legg Mason Value Trust — under manager Bill Miller — has long been an object of controversy among value purists with its taste for the likes of Google and Amazon.com.

Miller is also famous for “the streak” — an unrivaled run of 15 consecutive years in which his fund has beaten the S&P 500. The streak is in great jeopardy in ’06, with the fund’s year-to-date gain through Wednesday of 4.5% still trailing the index by more than 9% points.

Even so, as a holder of Value Trust shares in a retirement account, I’m glad I didn’t jump out of the fund a few months ago just because Miller looked to be having a sub par year. One obvious message in all this is that experienced value investors aren’t doctrinaire, insisting on sticking to old-line industries such as utilities or steel.

Richard Parower, manager of the Seligman Global Technology Fund, envisions a new cycle of business investment in high-tech equipment. “These cycles typically come around every seven or eight years,” Parower said. “Current systems have been fully depreciated and US companies are eager to start taking advantage of productivity gains from new software and services.” His specialised fund sports a 23% gain since July 21.

Back in the late 1990s, a runaway rise in tech stocks got out of hand. It set the market up for a painful letdown when many of the wildest hopes for the so-called New Economy proved impossible to fulfill. But there always was a solid core of real economic value there, created by the internet and other innovations. It doesn’t take an economics degree to see abundant chances today for more great productivity enhancements. Example? The crying need for a better system to store and transmit medical information. Tech stocks made trouble the last time they got hot.

Get more information

Review of SBI One India Fund MF

SBI Mutual Fund (MF) on Wednesday announced the launch of 'SBI One India Fund' that would primarily invest in diversified equity stocks of companies across all four geographical regions of India and in debt and money market instruments.

"SBI One India Fund is a close-ended growth fund that would primarily focus on investing at least 15 per cent and not more than 55 per cent of its equity exposure in each of the four regions," said SBI MF's Head of Equity, Sanjay Sinha here, while launching the new fund.

"The new fund will benchmark itself against BSE 200 index, a tough index to outperform," Sinha said adding "but a study by SBI MF had shown that stocks picked region wise from the index in a particular year had outperformed BSE 200."

The portfolio of stocks selected from each region, would have a healthy mix of large, midcap and smallcap stocks. The 'One India Fund' would pick 15 stocks from each region.

The fund would invest a minimum of 70 per cent in equity/equity-related instruments and the balance 30 per cent in a mixture of debt and money market instruments.

The scheme, which opens for subscription from November 24 and closes on December 22 will have a minimum application amount of Rs 5,000 and in multiples of Re 1.

The new fund would be an aggregate of the four regional multicap funds.

Get more information

Fund houses launch many close ended NFOs

The past couple of days have seen three fund houses launching three-year close-ended diversified equity funds. SBI Mutual Fund, Reliance Mutual Fund and LIC Mutual Fund are the latest to join the close-ended fund bandwagon.

While all three funds carry fancy names, how different these are from the existing bouquet of funds by the abovementioned houses remains to be seen. With benchmark indices at stratospheric levels, it appears that fund houses cannot seem to resist the short-term favourable climate for mobilising fresh assets from retail investors.

At the end of ’05, there was only one close-ended growth scheme. So far in ’06, already 10 close-ended growth schemes (excluding the abovementioned schemes) have hit the market. More are in the pipeline for regulatory approval.

Sebi issued a circular in April that said open-ended schemes would have to charge the initial expenses in the entry load of the scheme itself or should be paid by the asset manager. Earlier, funds could charge up to 6% of funds collected in a new fund offer (NFO) as expenses.

This means, if a fund collected Rs 1,000 crore, it could spend Rs 60 crore on advertising and marketing and charge it to the fund over six years, an accounting practice known as amortisation. This put long-term investors at a disadvantage as they bore the burden of expenses longer than those who exited earlier.

Off the record, asset management company (AMC) officials agree that the regulation, allowing close-ended schemes to amortise expenses over the life of the plans, is the primary reason why there is a spurt in NFOs of close-ended schemes.

Market watchers also allege that close-ended schemes, which are variants of their existing open-ended products, help fund houses skirt the Sebi diktat to trustees of AMCs to certify that a new scheme being launched is not similar to any of the company’s existing ones. But the regulator is closely watching the situation and some tightening of guidelines may be on the anvil.

“You haven’t heard of the last of it yet,” Sebi chairman M Damodaran told reporters on Wednesday, when this trend was pointed out to him. SBI MF on Wednesday announced launch of its region-specific equity scheme, One India Fund, which is to invest in diversified stocks, while aiming to pick best investment opportunities from all regions of the country.

 The scheme will be looking for stocks based on region, where company’s headquarter is located or where maximum revenues come from. Besides, the fund house has set up a team of four fund managers and four sectoral analysts to decide the course of investments.

On being questioned as to how the fund was different from the several funds already under its mangement, SBI head of equities Sanjay Sinha said that the scheme will allow fund mangers to have better focus while choosing stocks. How first arbitrarily putting stocks into separate baskets and then pooling them with regular parameters will help, is anybody’s guess?

While explaining about LIC’s India Vision Fund, CEO N Mohan Raj explained, “The emphasis will be on undervalued stocks in the ‘mid and small cap segment’, especially in the infrastructure, agriculture, retail, services and hospitality industry.” LIC already has four existing open-ended equity diversified funds.

Reliance’s Long Term Equity Fund also claims to invest in select small and mid-cap stocks, which have the potential to grow and deliver attractive returns. Reliance already has five equity-diversified funds called Equity, NRI Equities, Equity Opportunities, Growth, Vision funds.

The objective of Reliance’s latest offering is “to offer attractive growth potential to investors who have a long-term horizon.” However, it is true that close-ended funds enable fund managers to have better flexibility while investing, since they do not have to be on their toes in case investors want to withdraw their money.

Get more information

Review of Reliance Long Term Equity Fund (RLTEF)

Investment Objective

The primary investment objective of the scheme is to seek to generate long term capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities and Derivatives and the secondary objective is to generate consistent returns by investing in debt and money market securities. The fund shall primarily focus on the small and mid cap stocks. However depending on the views of the fund manager and market conditions in the interest of the investors, the fund manager will have the flexibility to select stocks which he feels are best suited to achieve the stated objective. The fund will have the flexibility to invest predominantly in a range of Small and Mid Cap companies/stocks with an objective to maximize the returns, at the same time trying to minimize the risk by reasonable diversification. However there can be no assurance that the investment objective of the scheme will be realized, as actual market movements may be at variance with anticipated trends. *Source: Offer document

Is this fund for you?

While a number of AMCs (Asset Management Company) have launched close-ended NFOs in the past, this is the first one for Reliance Mutual Fund. Reliance Equity Fund (launched in February 2006) was the last open-ended equity fund to be launched, before SEBI's (Securities and Exchange Board of India) clampdown on when and how entry loads could be charged. Reliance Long Term Equity Fund (RLTEF) is a 3-Yr close-ended diversified equity fund with automatic conversion into an open-ended fund on maturity. The fund proposes to generate long-term capital appreciation by investing predominantly in small and mid cap stocks. It will also invest in debt and money market instruments in order to generate consistent returns. Investments in small and mid caps hold above-average potential for risk-taking investors. If identified correctly at an early stage, these stocks can reap significant gains over the long-term. The oft-touted names by fund managers - Wipro, Infosys, HDFC Bank among others, were mid caps at one stage before blossoming into one of the most respected names in their respective sectors. Of course, it has taken them time to achieve that. At the same time, investment in small/mid cap stocks is not free from risk; rather the risk is above-average. This is because for every Wipro, Infosys or HDFC Bank, there are some forgettable companies like Vikas WSP, Aftek Infosys, VisualSoft and HFCL to name a few that failed to graduate to large caps. In other words these companies lacked the mettle to join the big league. This only underscores that every small/mid cap is not necessarily a large cap in the making and therein lies the risk of investing in small/mid cap stocks. Companies in the small/mid cap segment do not have established track records and data on them (which is critical for research) is not easily available. So, the chances of making a wrong investment decision are very high. A word of advice - investors investing in small/mid caps need to be patient enough as it could be a while before these stocks unlock the potential that is expected of them. So flitting in and out of these stocks/funds may not be the right way to go about investing in mid caps. With regards to Reliance Mutual Fund, we have not been able to get complete clarity on the investment proposition of some of their funds. For instance, Reliance Vision Fund until some years ago was predominantly invested in mid caps, while Reliance Growth Fund was the large cap offering. As things stand today, their investment mandates have reversed, which means Reliance Vision is a large cap fund, whereas Reliance Growth is a mid cap fund. The change in their mandates is inexplicable and given that they share the exactly same investment objective, we have no way to ascertain whether this change is only temporary or permanent. In Reliance Growth Fund, Reliance Mutual Fund already has a fund that invests in mid caps in addition to large caps. RLTEF proposes to invest 'strictly' in small/mid caps; effectively closing the door on large cap investments. In our view, the interests of risk-taking investors are better served by investing in well-established mid cap funds like Sundaram Select Midcap and Franklin India Prima Fund. Meanwhile, they can track RLTEF's performance over the 3-Yr period and then take a revised view on the fund.

Portfolio Strategy

RLTEF has a relatively straightforward portfolio strategy. The fund is mandated to invest 70%-100% of its net assets in equity and equity-related instruments. According to RLTEF's Offer Document, the equity investments will be made strictly in the small/mid cap segment. The market capitalisation ceiling for this segment is Rs 15 bn (Rs 1,500 crores), in other words, the fund is unlikely to invest in stocks beyond this ceiling under normal market conditions. However, as the Offer Document mentions, the fund manager can revise the ceiling depending on the market conditions and invest in stocks outside this universe. Instruments Allocation Range Equity and equity-related securities 70%-100% Debt and money market securities 0%-30% Moreover, if in the fund manager's view, equity markets are unlikely to perform well and there is a dearth of investment opportunities, the fund can reduce its allocations to equities and instead invest in debt and money market instruments upto 30% of net assets.

Fund Manager Profile

Mr. Sunil Singhania, is Fund Manager - Equity at Reliance Mutual Fund. He is a CA and CFA from AIMR, USA. Before joining Reliance Mutual Fund, he was associated with Motisons Securities Pvt. Ltd, and Advani Share Brokers Pvt. Ltd. He also manages Reliance Growth and Reliance Equity Opportunities among other funds.

Outlook

It pays to invest in diversified equity funds with a long-term perspective, at least 3 years in our view. Investing for the long-term is particularly relevant for small/mid caps since, unlike well-established large caps, they take a lot more time to unlock their potential. In fact, we would recommend that investments in mid caps should be made with a minimum 5-Yr investment time frame. And over this period, investors should be prepared to witness above-average volatility. RLTEF's fortunes will be closely linked to those of the small/mid cap segment. If anything, the fund may be exposed to higher risk levels since it plans to be invested strictly in small/mid caps and has a relatively low market cap ceiling of Rs 15 bn for that purpose. However, the flexibility to revise the market cap ceiling and invest in debt will prove useful. Get more information

Review of HSBC Tax Saver Equity Fund

To provide long term capital appreciation by investing in a diversified portfolio of equity & equity related instruments of companies across various sectors and industries, with no capitalisation bias. The Fund may also invest in fixed income securities.

Is this fund for you?

At least in the Indian context, timing usually plays a role in the launch of mutual fund products. With a little over 4 months left before the tax-planning season draws to a close, it is not surprising to see several AMCs (Asset Management Companies) launch their tax-saving funds (also referred to as Equity-linked Saving Scheme/ELSS). HSBC Tax Saver Equity Fund (HTSF) is one among several tax-saving funds launched in the recent past. It is a diversified equity fund, which offers investors an opportunity for saving tax by providing Section 80C benefits. Under Section 80C of the Income Tax Act, a taxpayer is eligible for deduction of upto Rs 100,000 in a year from his gross total income, provided the money is invested in specified instruments like tax-saving funds, for instance. Tax-saving funds are particularly relevant for the risk-taking investor aiming to save tax. To begin with, it is the only equity-linked investment within the tax-planning gamut. ULIPs (unit-linked insurance plans) are also market-linked, but they have an insurance element. Tax-saving funds have a 3-Yr lock-in, which compels investors to take a long-term view on equity markets. At Personalfn, we maintain that investors must in any case consider equity-linked investment with a minimum 3-Yr investment time frame. To that end, tax-saving funds are right up their alley. Another positive with tax-saving funds is that even the fund manager can practice long-term investing by taking investment decisions that will benefit investors over the long-term. Our view on HSBC Mutual Fund is that it's a process-driven fund house. There is relatively lower reliance on individuals, which is why the churn in its fund management team hasn't impacted its investment processes. Over the years, the performance of HSBC Equity Fund (a predominantly large cap) has caught our eye for its consistency. However, it's still early days for the fund house; take away HSBC Equity Fund (launched in December 10, 2002) and there is little of note the fund house has achieved, at least on the equity side. Apart from HSBC Equity Fund, none of its funds have completed 3 years of existence, so it may be a little premature to comment on their performances. Add to this the fact that the last 3 years have seen a secular rise in equity markets, which has made it even more challenging to form an objective view on fund management processes as opposed to fund's performance. At Personalfn, we like to see an equity fund backed by credible sponsors and well-defined investment processes put in a consistent performance over 3-5 years over various market phases (particularly the downturns).

Portfolio Strategy

HTSF is mandated to invest between 80%-100% of its assets in equities and equity-related instruments. It can also invest upto 20% of its assets in debt and money market instruments. Instruments Allocation Range Equities and equity related securities 80%-100% Debt, money market instruments and cash 0%-20% The fund proposes to invest in stocks from across market capitalisations i.e. it will invest in a mix of small, mid and large cap stocks across sectors to attain its stated objective of capital appreciation.

Fund Manager Profile

Mr. Mihir Vora, is Senior Vice President and Head of Fund Management-Equities. He is a CFA, B.E. (Mechanical) and also holds a Post Graduate Diploma in Management. Before joining HSBC Asset Management (India) Private Limited in July 2006, he was associated with ABN AMRO Asset Management Company Limited as Head-Equities.

Outlook

Theoretically, HTSF is well placed to benefit from its investment mandate of investing across market capitalisations and sectors. Also, as mentioned earlier, the lock-in period of 3-Yr will help the fund manager take a long-term view on his investments without worrying about redemptions. Moreover, the flexibility to invest in debt/money market instruments should see the fund tide over market turbulence relatively well.

Get more information

Indian real estate funds flow worth US$ 8 billion

After the government’s relaxation of foreign direct investment (FDI) norms for the real estate sector in early 2005, the real estate sector has seen a foray of real estate fund launches. Sizable investments are expected to flow into these funds according to real estate services firm Jones Lang LaSalle (JLL).

Currently, these funds cater to institutional investors and high-net-worth individuals (HNIs). The HDFC India Real Estate Fund (HI-REF) was launched in 2005.

It was the first fund that gave individuals and institutions the opportunity to invest in multiple properties through a single-investment vehicle, with the minimum investment size of INR 50 million. JLL estimates that as much as USD 8 billion of private equity could flow into the Indian real estate funds over the next 18 to 30 months.

With factors such as long-term interest rates showing signs of alignment with the developed economies, strong investor sentiments, increasing rentals and improving transparency, the realty funds should continue to remain an attractive alternative investment vehicle for domestic and international investors.

In 2007, an estimated 50 million sq ft of new office space across the seven major metros is to be completed. This phenomenal growth in the commercial and residential real estate markets will further catalyse the growth of realty funds. Realty funds are expected to register double-digit returns on the back of these fast-growing investment options.

Get more information