The Hindu Business Line : Tech funds

THERE are signs that a section of the mutual fund industry is rallying around the point that tech funds, which many feel have outlived their utility, must be reconstructed into more diversified products, capable of delivering better value to investors.

Indeed, Birla MF was the first to start off the block with its IT fund — Birla India Opportunities Fund today has a broadbased portfolio that embraces much more than mere tech stocks. And now, there are signs that a few others may follow suit.

Cholamandalam MF, for instance, is set to convert Chola Freedom Technology into something quite similar. IL&FS MF, too, is working on such a proposal with respect to its eCom Fund.

It is too early to suggest that the majority of the tech schemes will alter their fundamental investment objectives. Simply put, the proponents of the changeover believe that these funds, once converted, will perform better and benefit from the opportunities that may arise in the other promising areas of the economy.

However, the contrarian opinion is also quite forceful. The tech fund investor, who has entered at the IPO stage and has remained invested since then, is being given a chance to exit when the scheme's NAV is extremely low. That, in effect, becomes a raw deal for him or her. Such a situation, it is also felt, is not acceptable to those who firmly believe in the tech story. That NAVs are low in the tech fund category is no great secret; you have to just run through the latest NAV tables to grasp the realities on this front.

But are there many firm believers? While there are no direct answers to that question, market circles mainly think that the extraordinary valuations reached earlier (during the tech boom) will not be replicated in the near future. Amending the tech funds, therefore, is the most natural and sensible thing to do, a measure that needs to be welcome by the market.

The sector has undeniably lost its charm for fund managers who must now bother themselves with other and more important things.

Let us at this stage look at the recent performance of the dozen or so tech funds that are in existence. It seems that the last one-year, according to data pertaining to October 31 compiled by Value Research, has been good for most of them. The oldest scheme in this category - Franklin Infotech, launched in August 1998 - has secured a decent 30 per cent return during this period.

Franklin Internet Opportunities, for instance, has turned in 70 per cent, followed by Prudential ICICI Technology (58 per cent) and DSP Merrill Lynch Technology.com (52 per cent).

Feedback may be sent to blcal@vsnl.net

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