The Hindu Business Line : A glance at sector-specific funds

FOR those who are hooked to mainstream growth funds, a periodic review of sector-specific schemes can be a great diversion. There is a need to visit such funds time and again, for these often give you significant insights, ones that may be important if you are looking at building a well-diversified portfolio where select sector funds can play a crucial role.

The Indian MF sector currently plays host to a number of sectoral products - an increasing tribe, if one considers recent efforts by some players to come out with new options. The likes of UTI, Reliance and JM have offered funds that are focused on sectors like power, pharmaceuticals, automobiles, banking and so on. Each scheme has tried to grab the market's attention through its USP.

A quick look at their NAVs will tell you where each sector fund stands at the moment. Take, for instance, the ones dedicated to the auto segment. JM MF's new scheme is available at a NAV (Rs 10.18, as on July 16, that is marginally above the offer price.

UTI MF's scheme, on the other hand, has come below the Rs 10 mark. Its latest NAV is Rs 9.04. The two new products from Reliance MF - funds specialising in power and pharma - are available at Rs 9.98 and Rs 10.12 respectively.

There is really no point in judging these schemes at such early stages. One needs to give them enough time so as to live up to investors' expectations. However, there are a few categories of sector funds that have been in existence for longer periods.

Clearly, not all fund houses have been interested in launching sectoral vehicles. Even the lucrative oil & gas sector has not attracted more than two dedicated schemes.

Technology funds, most of which were launched during the tech boom, have been discussed at length by the investment fraternity. About half a dozen of them are still around; some, in fact, have been already converted into more broad-based products. DSP Merrill Lynch Technology.com fund leads the pack, if you consider one- and two-year performance. The scheme has been top scorer, with 68 per cent and 25 per cent returns during these two periods. It has beaten the BSE IT Index, which has logged 62 per cent and 12 per cent respectively.

The other `older' sectoral products include Franklin FMCG (Rs 14), Franklin Pharma (Rs 16.03) and Pru ICICI FMCG (Rs 11.54). These have been in existence for the past few years and discerning investors are quite familiar with their track record.

As things stand, the last one year or so has not been very exciting for many of the sectoral plays. The average one-year score (as on June 30) recorded by tech funds stands at 62 per cent, according to data produced by Value Research. Pharma funds ended the year with an average of 58 per cent. Petro and FMCG funds provided pedestrian numbers 27 per cent and 26 per cent respectively.

The numbers, it may be argued rightly, are not too compelling. Therefore, investors may not like the idea of putting money in sector funds, at least not with a longer-term perspective. The market is aware that investments in these vehicles are fraught with big risks.

Sectoral vehicles are not for the faint-hearted.

Feedback may be sent to blcal@vsnl.net

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