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With the markets booming it is inevitable that mutual funds followed suit.

Typically mutual funds see a spurt in new launches during a rally like the current one, hoping to attract higher investor participation in their schemes.

True to form, the past month has seen the launch of two unique schemes - Kotak Mahindra Mutual Fund's Kotak Global India Scheme and Birla Sun Life Mutual Fund's Birla Asset Allocation Fund.

Kotak Global India Scheme
Kotak Mahindra Mutual Fund launched this scheme in the first week of January.

The initial public offer of the open-ended equity growth scheme began on December 22, 2003, and will continue till January 16, 2004. Continuous offer of the scheme opens on February 13, 2004.

According to the fund, the scheme offers an opportunity to investors to participate in the potential growth of the booming Indian economy by investing in globally competitive Indian companies.

The fund defines globally competitive Indian companies as the ones which have the ability to compete with other companies globally while delivering products and services which are globally acceptable.

These companies are looking at international markets for growth and these markets will account for a large proportion of incremental growth for these companies.

"The focus on companies looking at international markets for growth offers the potential of high wealth creation for investors," says C Jayaram, director, Kotak Mahindra Asset Management Company.

Apart from the growth potential in these companies, international markets are a natural hedge against any unforeseen slump in Indian economic growth.

Units of Kotak Global India Scheme will be available at Rs 10 per unit during the IPO and at applicable NAV thereafter. The scheme carries an entry load of 2 per cent for investments less than Rs 2 crore, but charges no exit load.

According to the fund, the scheme is meant for investors with a long-term investment horizon and are seeking long-term capital appreciation.

The fund says its investment objective is to generate capital appreciation from a diversified portfolio of predominantly equity and equity-related securities issued by competitive Indian companies.

The fund proposes to invest 65-95 per cent of the portfolio in equity and equity-related securities and the remaining in debt and money market instruments.

The scheme offers both growth and dividend options. While there is no TDS (tax deducted at source) on redemption for resident Indians, the dividends are also tax-free for investors.

Minimum investment for the scheme has been pegged at Rs 5,000, while minimum redemption is at Rs 1,000 or 100 units.

While the concept of a scheme looking at global markets is appealing, analysts are wary of risks associated in an overheated market.

With most of the scrips having surged during the current rally, there is the lurking fear of a correction which might lead to downsides in the markets.

However, Rushabh Sheth, senior vice president and head of equity investments at Kotak Mahindra Mutual Fund, is confidant that the scheme would be able to generate returns in the region of 15-20 per cent over the next one year. Invest only if you are willing to stay put for at least three-five years.

Birla Asset Allocation Fund
Birla Asset Allocation Fund, from the stable of Birla Sun Life Mutual Fund, is an open-ended 'fund of funds' scheme. The fund is designed to help investors choose an option that is commensurate with their risk profiles.

According to Birla Mutual Fund, the scheme provides an inexpensive way of creating a basket of funds - which is balanced monthly - for investors.

Apart from investing in other schemes of Birla Mutual Fund, the scheme has an option of investing upto 30 per cent of its assets in schemes managed by other mutual funds.

Birla Mutual Fund also assures comprehensive asset allocation at multiple levels under the scheme, meaning monthly rebalancing, intra-asset class allocation between debt and equity funds and the intervention of fund manager in the case of extreme volatility.

The initial offer opened on January 6, 2004, and will close on January 20, 2004. The objective of the scheme is to provide income and capital appreciation along with diversification by investing in a basket of debt and equity mutual fund schemes in line with the risk profile of the investor.

The scheme offers four plans - aggressive, moderate, conservative and dynamic debt. Each plan will have two options - dividend and growth. Investors can also mix and match two or more schemes to create their ideal mix.

Birla Mutual Fund terms the dynamic debt plan as the one for the very conservative investor. The plan will invest 100 per cent in debt instruments.

The conservative plan (25 per cent equity, 75 per cent debt) is aimed at investors with a medium-term horizon, apart form investors who are retired or are approaching retirement.

The fund terms the moderate plan as the one for investors with medium risk profile. The moderate plan (51 per cent equity, 49 per cent debt) is ideally suited for middle-aged investors who are married with children and are in the distribution phase of their life cycle (typically expenses towards family commitments like children's education, marriage, housing etc.).

The aggressive plan (75 per cent equity, 25 per cent debt) is suited for investors with high risk profile, typically young investors who are in the accumulation phase of their life cycle.

While the aggressive plan carries an entry load of 1.50 per cent, moderate plan has 1 per cent and conservative plan 0.50 per cent. The dynamic debt plan carries no load.

There is no exit load on any plan under the asset allocation fund. The minimum investment limit is Rs 5,000 and in multiples of Rs 1 each thereafter under each plan. Minimum additional purchase amount is Rs 1,000 and in multiples of Rs 1 thereafter.

The fund's asset allocation strategy is based on the concept of risk diversification. Through asset allocation, investors can decide on the best mix of debt and equity which is commensurate with their risk profile.

According to the fund, the advantages of the asset allocation strategy include diversification across asset classes and schemes within an asset class and structuring based on specific risk profiles apart from ability to maintain asset allocation by continuos rebalancing of portfolio. Rebalancing of portfolios would be carried out on a monthly basis.

The fund won't be charging any entry/exit loads in underlying schemes of Birla Mutual Fund.

As compared to other mutual fund schemes, the benefits of investing in a 'fund of funds' lie in the form of tax benefits and cost savings than an investor could make in the case of portfolio rebalancing.

Under normal schemes, any rebalancing would attract costs and capital gains tax. A 'fund of funds', on the other hand, offers the twin benefits of automatic portfolio rebalancing and zero tax liabilities.