Kotak Mahindra Mutual Fund (KMMF) has decided to hold cash to the extent of 40 per cent in three of its equity schemes - K 30, K Tech and K MNC.
In a communication to investors dated January 10, 2002, C Jayaram, director Kotak Mahindra Asset Management Company, said:" We have therefore proposed a change in all the above mentioned equity schemes (K-30, K Tech and K MNC) permitting the fund managers to hold cash to the extent of 40 per cent of the portfolio, as they deem fit and necessary."
In yet another significant change, the complexion of K Tech is also being changed. The scheme's investment portfolio will now be limited to companies in infotech products, services and IT enabled services domain, the benchmark index for the scheme being the BSE IT Index. Currently its investment universe includes companies from IT services and companies that are significant users of technology. The changes will be effective from February 1, 2002.
The news letter said that while thus far the fund had followed the policy of being fully invested , "We find this premise of being fully invested at all times misplaced. When we perceive a high level of risk, it is only logical that we should act to protect capital by moving into cash for as long as necessary." This cash, he explained, could be put to use buying shares when prices fall to more attractive levels.
In holding cash "we are incorporating capital preservation as a secondary principle of our fund management strategy, the first principle and investment objective being that of maximising returns" the fund's communication elaborated. The board of trustees of the asset management company has also approved the proposed change, the letter said.
While holding cash would have the obvious advantage of preventing capital erosion, the risk of holding excessive cash is that while stocks head higher the fund would lose out on capital appreciation. "But even after taking this risk into account, we believe there is merit in adopting such a strategy," Jayaram said.
With reference to K Tech, the fund believes that taking on a pure sector fund status would give it the added flexibility to "own larger stakes in blue chips that make up the BSE IT Index." "We believe that larger IT firms are better placed to ride out the current challenging business environment," Jayaram said.
Investors in the schemes have been given the option to exit before February without paying any exit load or contingent deferred sales charge. Jayaram has taken charge of the operations of the fund since former chief executive Chandrashekhar Sathe left to assume other responsibilities in the group.
As on December 31, 2001 K 30 was invested to the extent of 103.31 per cent of its net assets in equity and 9.13 per cent in call and term deposits. K Tech was invested to the extent of 79.63 per cent in equity, 3 per cent in G-Secs, 9.35 per cent in commercial paper (CPs), and the remaining in call and term deposits. K MNC had investments to the extent of 95.58 per cent in equity, and the remaining in G-Secs and the call money market.
