Financial Daily from THE HINDU group of publications
Monday, Jul 18, 2005
Columns - Mutual Confidence
Investing in sector funds - right always?
IF you are a keen observer of equity funds, you will not expect any fund manager to deliver consistent returns for very long periods of time. Instead, you will expect interruptions, the occasional hiccups caused by corrections happening in the market. These will surely disturb your peace of mind. Not every one is wise enough to presage these disturbances, so one must be psychologically prepared to see NAVs start declining suddenly.
As the latest NAVs will indicate, a number of equity funds have moved ahead fairly well. Most diversified funds have tried to keep pace with the markets, while funds dedicated to sectors such as FMCG and banking have advanced particularly well. And this could well be the time to retract your positions with a view to blunting the impact of a probable weakening.
We have seen in the past how people have been caught unawares, despite obvious negative signals coming at them at regular intervals. Recall the technology boom witnessed during the early years of this century and its impact of tech funds' NAVs. Recall also the sudden and steep decline - `crash' is probably a better word in this context - that dealt a crushing blow to tech stocks. It took tech funds years to regain normalcy; some even changed their basic characteristics and turned into diversified funds.
Let us at this stage quickly go across to Fidelity, the newest player to enter the asset management space in India, which talks about investing in special industry sectors. Are these a good idea for the lay investor? Can a certain sector deliver smart returns consistently over, say, five or eight years in a row? The answer is obvious - no sector has performed without fail every single year.
To put it briefly, the message that Fidelity sends out is loud and clear. An investor must choose from among available options on the basis of what is right for him or her, factoring in the aspirations and circumstances that are entirely personal. If you are trying out various options, do think twice before you choose the flavour of the season.
Meanwhile, fund houses continue to mop up large resources through their NFOs (new fund offers). The latest to do so is Kotak Contra Fund. The scheme is known to have mobilised Rs 640 crore, which has come by way of more than 70,000 applications (covering 100 odd centres). The fund is based on the premise that in the long term, the market is triggered by fundamentals of companies, while in the short-term, prices may be influenced by sentiments. A contrarian style, incidentally, is different from growth or momentum oriented investing. It needs to be seen how much is garnered by Standard Chartered MF's Classic Equity Fund, the first equity scheme offered by the fund house.
On another front, it looks like asset management outfits will start playing an even bigger role in managing private wealth. The latter is set to emerge as a more specialised practice for these companies, one that allow professional fund managers to offer critical services with a view to meeting requirements of individual clients. So, do not be surprised if you start getting mailers (that is, if you are not getting them already) that talk about fund houses' growing expertise in handling private wealth.
With the expected normal and timely monsoon, we see very little chance for any negative surprises in the market in the next few months.
A.K. Sridhar, CIO, UTI Mutual Fund
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