Blast from the Past

Hari Mohan, a 45 year old clerk at the MTNL's New Delhi establishment, could not conceal his dismay. “At a time when inflation is at 7.5 per cent, the 6.75 per cent that they are referring to is peanuts,” he says with reference to an article in the newspaper about the bonds issued to investors in lieu of UTI's US-64 schemes unit. Incidentally, the Unit 64 scheme is maturing on May 31, 2008. Hari Mohan is not alone, 83 per cent of 20 million unit holders of the then US-64 schemes stood party to this mass exodus. In April 2003 when the sordid US-64 saga was laid to rest by the then NDA government, it was decided that investors of US-64 be given the option of 6.75 per cent tax-free bonds or liquidation of their holding. Investors holding up to 5,000 units would be offered Rs 12 and for additional holdings they would be offered Rs 10 per unit. “You get paid at the face value for a scheme you held for almost 40 years. So the plan B with tax-free advantage looked lucrative. It was an enforced error,” says Mohan. Rightly said, the tax-free option did look rewarding, then. But it turned out to be one of the most horrendous investment decisions one could have ever made. Consider this - Rs 1 lakh invested (shifted) to the bonds would fetch Rs 1.38 lakh in a span of year (May 31, 2008). Had this amount been invested in other existing schemes of UTI, say UTI Balanced, the amount would have swollen to Rs. 3.43 lakh. Even if you consider the conservative UTI Mahila Unit Scheme, which invests 66 per cent in debt, you would have been sitting on a pile of Rs 2.50 lakh. A little bit of conscious and judiciously decision and the corpus would been a pharaohcious Rs. 11.86 lakh, if invested in Reliance Growth.

(by value research)

In The Pink Of Health

The struggling pharma funds have staged a smart recovery after a lackluster performance for the past few years. The BSE Healthcare Index, that crashed along with the rest of the market in January 2008, has recovered quickly and gained 17.7 per cent in the past three months. In 2005-06, the Equity: Pharma category was the worst performing category in the equity class of mutual funds. The average return of the category in the three-year period (2005-07) stood at 20 per cent, a far cry from the 47.3 per cent return by equity diversified funds. This small category with
five funds has also witnessed a steep fall in assets under management since then. The combined AUM that stood at Rs 623 crore in January 2005 is down 60 per cent to Rs 254 crore, Reliance Pharma alone accounting for Rs 122 crore. Surprisingly, none of the five funds in this category have a large-cap heavy portfolio.
However, in the three month period ended May 2, 2008, the pharma category of mutual funds bounced back. In the period, the average return of pharma funds stood at 10.28 per cent, at a time when almost all equity categories posted negative returns. Reliance Pharma, the category topper for the past two years could not manage to retain its position. Magnum Pharma took very concentrated bets with 48 per cent of the portfolio in just two stocks. As a result, it could not capitalise on the surge in the sector and was the only one to post negative returns.
Fund

Return (%)*
UTI Pharma & Healthcare

16.35
JM Healthcare Sector

15.18
Franklin Pharma

13.92
Reliance Pharma

6.35
Magnum Pharma

-0.4
Category Average

10.28
*February 2- May 2, 2008
The robust numbers declared by various pharma companies helped the sector rally. For instance, Ranbaxy Laboratories, the second largest aggregated holding of these funds, reported a 60 per cent growth in its PAT over 2007-08. Smaller players like Glenmark Pharma reported a 188 per cent rise in profits on a y-o-y basis.
Stocks

Return (%)*
Glenmark Pharmaceuticals

39.82
Ranbaxy Laboratories

33.87
Sun Pharmaceutical Industries

28.98
Glaxosmithkline Pharmaceuticals

25.60
Biocon

23.66
*February 2- May 2, 2008
(by valueresearch)

Biggest of them All

Three months after its launch in January 2008, Reliance Natural Resources Fund has emerged as the India's largest equity fund with assets under management (AUM) of Rs 5,589 crore (April 2008). The fund overtook ICICI Prudential Infrastructure Fund which topped the charts in March with an AUM of Rs 5,390 crore. It was not too long ago that the AUM of Reliance Mutual Fund touched Rs 1 lakh crore. In January 2008, when most investors refrained from investing and fund houses had a tough time mobilising funds,Reliance Natural Resources managed to collect a whopping Rs 5,660 crore. It was the second largest collection by an equity mutual fund; the top place occupied by another Reliance family member - Reliance Equity, which mobilised Rs 5,790 crore in 2006. The equity funds from the Reliance stable do not hesitate from taking aggressive cash calls. This fund is no exception as the fund currently maintains extremely high cash levels. Though the cash component decreased in April to 53 per cent from March levels of 62 per cent, the fund manager is still waiting for the right opportunity to invest in stock markets. The fund's AUM has eroded by Rs 71 crore since launch but the high cash strategy helped the fund protect the downside. The fund posted a positive return of 0.5 per cent since February 26, 2008 (first NAV date), at a time when the average return of the equity diversified funds has been (-) 6 per cent (February 26 - May 8, 2008). Looking at the portfolio, various large cap stocks like Reliance Industries , ONGC and ACC have been included. However, the fund is quite keen on diversifying by investing in securities abroad. As per its mandate, the fund can invest up to 35 per cent of its assets in foreign securities. The exposure to such stocks has been increased in a short span and close to 7 per cent of its assets account for such foreign securities. Though the investment in such assets is small, the fund manager has selected companies like Arcelor Mittal (world's largest steel producer) and Freeport McMoRan Copper & Gold (world's largest publicly traded copper company). The fund's maximum international investment is in companies engaged in the global water industry. This investment is through PowerShares Water Resources ETF, a water index based international ETF.

(by valueresearch)

50% Dividend in DSPML Top 100 Equity Fund

DSPML Top 100 Equity Fund, has declared dividend at Rs 5 per unit on the face value of Rs 10.

The record date has been fixed as May 23, 2008. This is the seventh payout from the fund since its launch. Prior to this, the fund had declared a 50% dividend in June 2007.

(by valueresearch)

Dividends in FT India Balanced Fund (FTIBF) and Templeton India Equity Income Fund (TIEIF).

Franklin Templeton Investments is declaring dividends in FT India Balanced Fund (FTIBF) and Templeton India Equity Income Fund (TIEIF).
The details for the same are given below:
FTIBF: Rs.3.00 per unit
TIEIF:Rs.0.70 per unit
Record Date for both dividends:May 21, 2008 (Wednesday)
Ex-dividend NAV Date - May 23, 2008 (Friday)

Book Closure:May 22, 2008 (Thursday)

Bharti AXA's Green Debut

There's a new kid on the mutual fund block and it seems like it's trying to make a unique debut. Bharti AXA is the latest entrant in the Indian mutual fund space and has got some good news for eco-friendly investors. The company has devised a unique eco-friendly plan in which the investors would receive all the communication from the fund company like account statement, portfolio statement, etc through emails or SMS. This eco plan will be available for investors investing up to Rs. 2 lakh.This may turn out to be a win-win situation for both investors and the AMC. Investors won't
have to maintain thick files containing the communiqué from the AMC and the AMC will in turn save on the cost of paper and postage charges. Moreover the savings earned by the AMC through this would be passed on to the investor as 0.25 per cent reduction in the recurring expenses. This means that if an investor invests Rs 1,000 per month through SIP for 5 years, he can save upto Rs 500, considering a conservative rate of return of 10 per cent per annum. This may not seem much for an investment of Rs 60,000, but if one wants to go green, this is better than nothing.

(by valueresearch)

Does Size Matter?

Most mutual fund investors are not bothered by the size of the fund they invest in. In fact, few of them are even aware that funds have a characteristic called size, or that fund size refers to the amount of money that a mutual fund scheme is managing. The few who are aware of this are generally of the opinion that larger is better. I suppose the logic is that if a fund has been given a lot of money to manage then this proves that the fund must be good.Is this true? Not quite. While fund size does matter, it matters for a very different reason. Large equity funds are
difficult to manage in many situations, as the recent travails of India's largest equity fund are in the process of demonstrating. Reliance Natural Resources Fund was launched in January 2008. To be precise, the new fund offer (NFO) opened on January 1, 2008 and closed on 30th January. Thus, it caught the peak (and the tail-end) of the stock markets' bull run. Such was the hype of the times that it collected a huge Rs 5,660 crore during the NFO itself. I rather think that the fund was also helped by the similarity between its name and that of the company Reliance Natural Resources Limited, which is also from the ADA group. This company's stock price went through the roof between September and January.
Anyhow, Reliance Natural Resources Fund was extremely lucky in its timing. It collected a huge amount of money but when the time came to deploy the money, the markets had already crashed. As a result, this fund has not actually deployed a majority of that money. In March, 62 per cent of that huge corpus was being held uninvested instead of being deployed in stocks. In April, this percentage had declined a bit was still at a high 52 per cent. These high cash levels have helped protect this fund from losses while the stock markets were declining. If the timing had been a little different and the fund had deployed the money before the crash, then its investors would have been in a sorry state indeed.However, from now on, a combination of huge size and hesitant markets is going to be a problem. Not deploying the money for long would lead to poor performance if the markets go up but deploying it would lead to poor performance if the markets go up. Sure, this problem exists for all equity funds currently. Nonetheless, when a large high profile fund is hovering at the edge of the psychologically important NAV level of Rs 10, then it's especially acute. As all fund managers and fund marketing men know, it's far worse for your NAV to fall from Rs 10 to Rs 9 than (for example) it is to fall from Rs 20 to Rs 18, even though the investors' losses are the same in both cases. I imagine that having a single digit NAV would rather diminish the bragging rights bestowed by running India's largest equity fund.The big-is-good marketing message is also often extended to fund companies. Fund distributors flogging funds from the larger fund companies like Reliance, ICICI Prudential, UTI and HDFC never fail to mention this fact. The logic is supposedly similar to that of individual funds. If the fund company is big, it must be doing something right. While that is true, that 'something' it is doing right could be just marketing. All in all, size matters, but not always. There are a different set of very real problems that are faced by very small funds and fund companies. However, outside the extremes, it is difficult to see any real evidence of size having any effect on performance. As a positive factor, the size of a fund or a fund company is of relevance to its owners, not to its investors.

(by valueresearch)