A long-term advantage

NFO REVIEW

Birla Sun Life's new closed- ended equity fund is hoping to give better returns on the back of a stable corpus.

Birla Sun Life Mutual Fund has launched a closed-ended diversified equity fund""Birla Long Term Advantage Fund. Designed to achieve attractive equity market returns over a five-year horizon, the fund will follow a bottom-up approach to build its portfolio and avail of all under-priced opportunities in the market. 
 

PERFORMANCE OF BIRLA EQUITY FUNDS
	Launch  date	1 year  returns  (%)
Frontline Equity	Aug-02	35.68
Basic Industries	Jan-00	32.06
Advantage	Feb-95	31.53
Equity	Aug-98	31.45
India Opportunities	Aug-03	28.25
Mid Cap	Oct-02	28.23
Top 100	Sep-05	24.33
Asset Allocation Aggressive	Jan-04	23.99
MNC	Dec-99	23.36
Buy India	Jan-00	20.20
Dividend Yield Plus	Feb-03	9.20
Sensex	-	39.00
Nifty	-	34.54

The Long Term Advantage Fund will use derivatives to the extent of 50 per cent of the assets under management to hedge its portfolio in volatile times.

Chief Investment Officer, A Balasubramanian says, "The fund would look at gaining from the long-term growth in the equity market over five years. And because of its closed-ended structure, the fund will do better." The fund house claims that closed-ended funds have outperformed the broader market over five years.

While Birla Taxplan 98 has posted a 48.51 per cent return, other closed-ended schemes have clocked 36.35 per cent and the Sensex has posted 25.81 per cent over the same period. The returns over a one year period were 23.57 per cent, 20.89 per cent and 38.77 per cent, respectively.

Interestingly, the probability of generating positive returns in the equity market over a five-year period is 87 per cent while it is 63 per cent over a one year period. According to a study conducted by Birla Sun Life Mutual Fund, out of 23 five-year periods since March 1984 till now, the Sensex has given positive returns in 20 such periods.

The highest returns in all these five- year periods were seen in the periods ending March 1992 (52 per cent), March 1993 (41 per cent), March 1994 (40 per cent), March 1995 (35 per cent) and March 2006 (28 per cent).

Several equity funds from the Birla Sun Life stable have performed well over the past one year, including Birla Advantage Fund (31.53 per cent return), Asset Allocation Aggressive Fund (23.99 per cent), India Opportunities Fund (28.25 per cent), Basic Industries Fund (32.06 per cent) and Frontline Equity Fund (35.68 per cent).

During the same period, the Nifty has posted a growth of 34.54 per cent, while the Sensex clocked gains of 39 per cent. The fund house holds the view that market fundamentals like a reasonable P/E of 16.8 FY07E, estimated GDP growth rate of 8.4 per cent for the year, favourable demographics and strong corporate earnings augur well for the equity markets, going forward.

After a spate of open-ended funds, closed-ended funds aimed at bringing some discipline in staying invested and in lending stability to the portfolio are slowly hitting the market once again.

"Investors who feel that they have availed of good returns earlier, have an option to book their gains and exit. The exit load in the form of proportionate unamortised issue expenses would be negligible as compared to the appreciation that would have been experienced by then," says Balasubramanian.

Given that these are not pure closed-ended funds, in the sense that investors do have the option of exiting at any point with minimal load, the logic of a stable corpus resulting in superior returns may or may not work.

The Long Term Advantage Fund opens for subscription on August 7 and closes on September 8. It offers dividend and growth options with a minimum investment amount of Rs 5,000.