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5 mutual funds to watch

5 mutual funds to watch
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First Published: Mon, Nov 03 2008. 12 30 AM IST

Updated: Mon, Dec 29 2008. 05 22 PM IST
Reliance Mutual Fund: Mammoth Player
Reliance Mutual has a history of letting its funds get bloated in terms of its assets under management, or AUM. And the firm’s culture places a premium on running a big fund.
Ever since it started in 1995, it has rapidly increased its AUM. From being India’s largest private sector mutual fund in 2006, it became the largest mutual fund by 2007. Reliance Equity Advantage fund created history by mopping up Rs2,700 crore in its new fund offer, or NFO, in 2007. This year, Reliance Natural Resources Retail mopped up Rs5,660 crore. Reliance has managed to garner a huge amount of assets because it actively pursues NFOs. It started with the launch of two equity funds, Reliance Vision and Reliance Growth, whose performance in 2002 and 2003 made it a hit with investors.
Also See Facts & Figures (Graphic)
The asset management company (AMC) has many firsts to its credit among sector funds: banking, media and entertainment, and power. This year, it came out with a Natural Resource Fund. On the debt side, the fund house has good, low expense ratio funds such as Reliance Short Term and Reliance Liquid Treasury.
Though the fund house barely has a presence in the hybrid category, it does have a huge choice in the types of funds, with some good performers.
HDFC Mutual Fund: Star Performer
One of the industry’s sturdiest shops, its performance has been strong over time. Lately, however, it has gravitated towards the back of the pack.
HDFC Mutual’s temperate ways have served it well over the years. It has been a consistent performer, providing a cushion as racier options fell. But investors are disappointed with its performance in the second half of the bull run. Certainly the risk-adjusted returns were not impressive, but it is no cause for alarm. These funds lag the pack when the market’s raciest names lead the charge.
In Prashant Jain, investors have a fund manager who has proved his mettle over various market cycles. In 2003, HDFC Mutual Fund bought out Zurich Mutual Fund to become the second largest fund house in India, inheriting a great equity portfolio, an aspect missing earlier (prior to this, HDFC Mutual Fund was focused on debt offerings.)
Also See Facts & Figures (Graphic)
The funds’ performances have an enviable track record. The company currently has nine funds with a four-five-star rating. But there seem to be no star fund managers other than Jain. Recently, the fund house has also been losing talent. It seems to have gone on an asset-building spree—surprising, since it always steered clear of the NFO mania. In 2007, it launched a number of funds, including two close-ended equity funds, a mid-cap offering and an infrastructure fund.
ICICI Prudential Mutual Fund:Impressive Growth
It’s like having two AMCs under one roof: a large, well-run fixed income one and an average equity one.
This fund house has been quite aggressive in its product launches. In the equity segment, it came out with three schemes this year. It offers a lot of variety to investors. Unfortunately, its performance in equity does not match up to its debt funds.
From its inception a decade ago, it created history in the fund management industry, reaching the No. 2 position in just five years. But ICICI Prudential is more dependent on institutional investors and debt assets. Out of its asset base of Rs49,371.12 crore, around 28% comes from cash funds and almost 20% from fixed maturity plans, or FMPs. The company is credited with running the largest ultra short-term fund and floating rate short-term fund.
Also See Facts & Figures (Graphic)
ICICI Mutual Fund was promoted by ICICI and later, US-based investment bank JPMorgan acquired a stake. In 1997, the latter was replaced by Prudential Plc., a British insurance and pension major, with a name change to Prudential ICICI (a joint holding in 55:45 ratio). In 2007, the name again changed to ICICI Prudential to reflect a change in the shareholding pattern.
UTI Mutual Fund:Needs a performance boost
Only a few of UTI’s funds are great performers but this public sector fund house has advantages its rivals lack. It has a huge base of retail equity investors and a vast distribution network largely inherited from the Unit Trust of India.
In the last few years, UTI slipped from being the largest AMC to being No. 4. However, its asset growth has been robust, if slow. It still has the largest investor base and biggest equity assets besides being, by far, the country’s most profitable fund company. Its conservative approach and stable parentage make it attractive.
Its problem is dragging performance. Recently, it has made an effort to improve, merging several equity schemes and overhauling its approach to equity investment. However, falling stock markets have made it impossible to judge its success. UTI’s top performers are a few index funds, some hybrid funds and its infrastructure funds. Some income funds also stack up well.
Also See Facts & Figures (Graphic)
UTI is co-owned by four public sector enterprises: Life Insurance Corp., State Bank of India, Punjab National Bank and Bank of Baroda. It was planning an IPO this year which would have made it India’s only listed fund company. However, the issue was deferred due to falling stock markets.
Birla Sun Life Mutual Fund: Variety Galore
Birla Sun Life’s best performers tend to be its debt funds, with the bulk of its debt assets in cash funds. Some of its gilt and short-term funds stand out. However, interestingly, Birla Sun Life’s roster includes some of the best as well as some of the worst debt funds.
Of its 14 funds boasting a five-star or four-star rating, just one is an equity offering. Not surprising since equity assets stand at just around 17%. None of the equity funds, barring Birla Sun Life Equity, is a star performer.
In December last year, the company lost two good fund managers, equity and debt. This year, the CEO moved out; the new one has ambitious plans.
Also See Facts & Figures (Graphic)
Birla Sun Life AMC is an equal stake-joint venture between Aditya Vikram Birla Group and Sun Life of Canada. Besides the mutual fund business, they are partners in financial distribution and stockbroking businesses and in life insurance.
In 2004, the AMC bought Alliance Capital AMC, becoming India’s fifth largest fund house. Alliance Mutual Fund had 14 schemes which got added to Birla Sun Life’s 38. It also benefited from some equity funds such as Alliance Basic Industries and Alliance Equity, which were excellent performers.
Graphics by Ahmed Raza Khan / Mint
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Invest
These days checking out returns from equity funds can be depressing, with some having fallen by as much as 67%. But one category of funds has actually delivered positive returns. Gilt funds are mutual funds that invest in government securities, or G-Secs, including Union government dated securities, state government securities and treasury bills.
Investments in G-Secs fetch the highest level of safety as they are immune from default. The only risk here is the interest rate sensitivity as they are marked to market. So, if the interest rate goes down, the price of the security rises, and vice-versa.
Know
Unfazed by talk of a European recession, Fidelity has filed an offer document to launch the Fidelity European Dynamic Growth Fund. The Indian fund will invest in Fidelity’s European Dynamic Growth Fund, based in Luxembourg, which invests in mid-sized European companies with market capitalization of €1-10 billion (Rs6,280- 62,800 crore). The new fund can invest up to 20% in money market instruments or cash and liquid funds. In terms of geographic spread, 26% of the fund is in Switzerland, 25% in Germany, 15% in Sweden and 11% in the UK. It will be benchmarked against the MSCI Europe Index.
Watch
Religare Aegon, the new asset management company, has filed an offer document with Sebi for its first equity fund—Religare Aegon Business Leaders Fund.
The fund, to be benchmarked against the S&P CNX Nifty Index, will invest in stocks of leading companies in their respective industries. The fund manager will look for parameters such as better pricing power, superior cost structure, significant and sustainable competitive advantages, among others, which reflect in high market share, high return on equity or high growth rate. The fund may also invest up to 20% in debt and money market instruments.
There are at least two other funds with a similar portfolio focus to Religare Aegon’s Business Leaders Fund—UTI Leadership and Sundaram BNP Paribas India Leadership.
Remember
Investors should not need to time the market. The investing approach should stay the same regardless of market conditions.
• Put any cash you need for three-five years in fixed income assets.
• Long-term funds should be allocated between fixed income and equity depending on your ability to take temporary losses.
• If that balance changes because one asset type has earned more than the other, sell one and buy the other to restore the balance.
• Never invest large sums in equity. Do it gradually, SIP style.
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First Published: Mon, Nov 03 2008. 12 30 AM IST
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