MFs to launch plans for volatile markets

Stung by the sharp market fall in recent times, mutual funds are planning schemes that will give fund managers the leeway to adopt strategies in line with the market conditions.

Fund houses want to ensure they are not restricted by the fund's investment mandate about having to invest in certain sectors even in case of change in sentiment.

MULTI-STRATEGY

STUNG BY the sharp market fall in recent times, mutual funds are planning schemes that will give fund managers the leeway to adopt strategies in line with the market conditions

FUND HOUSES want to ensure they are not restricted by the fund's investment mandate about having to invest in certain sectors even in case of change in sentiment

JM Financial Mutual Fund has obtained approval from the Securities and Exchange Board of India (Sebi) to launch its multi-strategy fund, an open-ended equity-oriented fund that will adopt a host of strategies depending on the fund manager's view on the market.

"We have received Sebi's approval for the multi-strategy fund and will launch the same depending on how investors look at new funds," said Sandip Sabharwal, chief investment officer, JM Financial Investment Management.

The BSE has been having a rough run in recent times, falling by around 25 per cent from its peak on January 10.

According to the offer document, if the fund manager expects the markets to head downwards, the scheme can hedge exposure to equity either fully or partially by initiating short futures positions in the index.

The fund will also take advantage of mispricing opportunities by shorting stock futures within applicable limits. Moreover, the fund manager will use put and call options, depending on his view of the market.

ICICI Prudential, in the draft prospectus submitted to Sebi for its long-short fund, speaks about how it would generate extra returns.

Firstly, the company will take equity exposure up to 130 per cent of its portfolio value in index and companies that are expected to provide high returns or relative out-performance.

Secondly, the company will take short positions, to the extent of 30 per cent of its portfolio value, by selling index and stocks that are likely to fall or underperform on a relative basis. As a result, the net equity exposure of the fund will be 130 per cent long-30 per cent short, as per the offer document.

Fund houses such as Sundaram BNP Paribas and Lotus India Mutual Fund are also planning to introduce funds to exploit the short selling and stock lending and borrowing mechanism that will become operational from April 21.

"We may come out with a long-short fund. This may not be immediate as the market is only trading at the shorter end""in options and derivatives, at present," said Sunil Subramaniam, executive director- sales and marketing, Sundaram BNP Paribas Mutual Fund.