Names usually stay with you for life. Apparently that is not the case with Tata Asset Management Co. Ltd, or so it appears. Tata Select Equity Fund (TSEF) has just got a new name, Tata Ethical Fund (TEF). The latest is the fourth time the scheme has changed its name since inception.
According to the addendum that the fund house issued a few days back, the scheme will sport its new name effective 5 September. As per the scheme’s new mandate, TEF will invest in equity scrips of companies that are compliant with the Islamic Sharia laws.
A history of change
Launched in May 1996, the scheme initially invested in the core sectors of the economy. Typically, the core sectors are cyclical in nature and consist of capital goods, cement, auto, housing and construction. It was then known as Tata Core Sector Equity Fund. Though its performance was decent enough (39% compared with the category average of 29%), the scheme changed its course and became Tata IT Sector Fund on the back of the information technology (IT) sector boom in early 2000. It started investing in IT companies and became a sector fund.
Then, after the IT stocks fell globally, it changed course in April 2001 to become Tata Select Sector Fund. This meant the fund was allowed to invest in a whole gamut of sectors, but not more than five sectors at any given point in time.
This approach too didn’t go down well with the management and there was yet another change. So finally, in August 2002, the fund became a plain-vanilla diversified fund and was free to invest across all sectors and all companies at all points in time. As per the fund house’s internal policies, TSEF was, for long, managed like an ethical fund and it restricted itself to investing in sectors, such as liquor and tobacco companies, which are typically avoided by ethical funds worldwide.
Last week, and for the fourth time in the scheme’s history, the fund house yet again decided to change the name and objective of the fund house. TSEF or TEF will now avoid companies that deal with liquor, tobacco, hospitality and hotels, and companies engaged in producing non-halal food products and so on.
What does this mean?
The bright side to the latest change is that the fund house has decided to concretize the scheme’s existing investment policies and give it a more formal stamp by calling it an ethical fund and formally adhering to the Sharia standards.
Sharia experts claim this brings clarity to investors. “If it is an Islamic fund, then fund houses should be allowed to name them that way. Else, how can advisers like us tell our clients to invest in that fund,” says Zafar Sareshwala, managing director, Parsoli Corp., a Mumbai-based Islamic financial services company. Our regulators (Securities and Exchange Board of India, or Sebi), adds Sareshwala, were averse to calling MF schemes as Sharia or Islamic funds earlier. “But even the UK and Germany, where the Muslim population is less than 2% and 5%, respectively, have Sharia funds.”
Says Dhirendra Kumar, CEO, Value Research, a mutual fund (MF) tracking firm: “From being a ‘select equity fund’ to an ‘ethical fund’, it is a big change. An ethical fund differentiates itself from the rest of the fund house’s offerings.” Kumar adds that the latest change seems to be the outcome of Sebi’s efforts in recent years to goad MFs to consolidate their schemes.
But are so many changes to one scheme necessary? “This fund has been operating as TSEF for nine years, out of its lifespan of 15 years. Hence in the current context it is sufficient and relevant to focus only on the change to TEF. The change is being made based on feedback received from associates and investors alike,” says an official spokesperson from Tata AMC. Let’s just hope that the scheme has found its true calling.