Themes did the trick for MF

The domestic mutual fund industry has been a net seller in the equity market during 2004. Still the fund managers are a smiling lot. The reason is not very difficult to understand.

The year 2004 for mutual funds (MF) can be easily termed as the "Year of Themes" as almost every fund houses tried "" and to a large succeeded "" in luring investors into their fold with innovative ideas and themes.

Ashutosh Bishnoi, chief marketing officer at UTI Mutual fund says, "The year was good for the MF industry, specially for equity funds because most new schemes were well received. Besides, equity schemes did well on the whole. This helped add the assets under management (AUM) and the number of investors."

The MF industry managed an 8 per cent total growth in AUM from Rs 1,39,000 crore in December 2003 to Rs 1,50,000 crore in November 2004. The industry has garnered more than Rs 8,000 crore via new schemes.

Incidentally, the benchmark indices in the equity market has grown more than 12 per cent during this period. Bishnoi adds that some redemptions for profit-booking are good for the industry and augurs well for the long-term growth.

Rajendra Naik, managing director at Centrumdirect, a financial products distributor and wealth manager, says, "MFs were able to create awareness with retail investors in a major way in 2004 and the slew of IPOs and new themes helped catch attention. The reach also widened with the participation coming in from a lot more centres than before."

Ved Prakash Chaturvedi, CEO of Tata Mutual Fund adds, "Investors have appreciated performance, and funds who have done well have received better response from the investors. Our latest IPO has received a huge response from a wider audience with almost 100 cities/towns participating in it."

A section of investment advisors and intermediaries though point out that some investors have been pumping the profits back into IPOs of new equity funds.

Besides they add that the equity has done well, while debt schemes have had a bad year. But fund managers argue that schemes still have to show performance in a rising market and claim that re-investments in new schemes show that investors have faith in the fund manager.

Fund houses on their part have only been too happy to cash in on the trend with launches of new theme based products.

As one fund distributor puts it, "Thursday's equity fund investor is a lot savvy and is quite eager to put his money into profitable ideas which he would otherwise not have identified on his own".

The average investor is aware that the market has rallied considerably and the only way to stay on top of the market is to find out niches early which would bring him benefits later".

The three broad themes that clicked in 2004 were Leadership, Valuation and Sectoral themes. The Leadership theme explored both companies that are leaders in their various sectors or sectors which could emerge leaders in the economy.

Funds such as the Sundaram India Leadership Fund, HSBC India Opportunities Fund, Kotak Global India Fund and Pru ICICI Emerging STAR Fund were the pioneers in this theme.

There were also a couple of mid-cap funds under this category that talked about picking tomorrow's winners on Thursday, such as Chola Midcap and Sahara Midcap funds.

Interestingly, HDFC Core & Satellite Fund, which adopted a middle path with respect to the leadership theme, saw a huge mobilisation of over Rs 400 crore in its IPO in September 2004.

Unlike Leadership, the Valuation theme aimed to identify undervalued stocks and invest in them. Among the new launches under the Valuation theme were the Tata Equity P/E Fund that was launched in June 2004, aiming to pick up stocks with lower P/Es than that of the Sensex.

There were two new funds in this category, which were based on dividend yield theme of stockpicking, namely the Principal Dividend Yield Fund and the Tata Dividend Yield Fund, launched back to back in September - October, 2004 and which garnered over Rs 350 crore and Rs 400 crore, respectively.

The other new fund-based on undervaluation was the Pru ICICI Discovery Fund, launched in July 2004. Sector funds made a comeback this year as Sectoral theme funds, with large players such as UTI Mutual launching as many as six such funds under its Thematic Funds umbrella.

The other fundhouse that placed a major thrust on launching sectoral funds was Reliance, which launched the Reliance Diversified Power Sector Fund, Reliance Pharma Fund and Reliance Media and Entertainment Fund. The recently-concluded IPO of Tata Infrastructure Fund is another sectoral theme fund.

Principal Mutual Fund pioneered the Indian equity funds' global investment with the launch of Principal Global Opportunities Fund. The limited support to the launch has been attributed to it being a new concept and to the regulatory hassles.

The other player to have evinced an interest in launching such a product is UTI Mutual Fund through a strategic tie up with State Street Global Advisors. But the launch is still to be cleared.

Going by the list of offer documents submitted to the regulator Sebi for clearances, it becomes obvious that the trend of theme funds hitting the market is likely to continue in the new year.

But financial planners warn that with a plethora of such funds, it becomes increasingly difficult for an individual investor to choose the correct one based on his needs and risk-return profile.