The Hindu Business Line : Kotak Mahindra unveils scheme for `undervalued' stocks

Kotak Contra, as the scheme has been named, will be aimed at investors who believe that stock prices reflect intrinsic value of their underlying companies over a period of time. It will also be directed towards those who seek capital appreciation from companies that are traded at prices lower than their estimated intrinsic value.

The scheme, which will have the S&P CNX 500 as its benchmark, will invest in companies across sectors and market capitalisations. Investors should be ready to take risk of estimation of the right intrinsic value by the fund manager, the offer document that has been sent to SEBI has stated. Its portfolio will mainly include equity, carrying moderate to high risk because of price fluctuations and volatility.

Kotak Contra may also invest up to 35 per cent in money market instruments and debt securities.

The offer document specifically refers to companies that have enjoyed strong track records and fundamentally sound business models but appear to have fallen temporarily out of favour for short-term or non-recurring reasons.

In other cases, the fund manager (identified by the MF as Mr Rushabh Sheth) may choose companies that are currently undervalued in relation to their peers and the rest of the market.

"These companies may be undergoing positive fundamental change, such as significant cost cutting, the entry of a new management team, launch of new products, consolidation in the industry," the offer document has mentioned. There will be a bottom-up approach to investing.

Plans income scheme:

The MF has also worked out an open-ended income scheme, aimed at those who wish to have an actively-managed portfolio of debt securities.

The proposed Kotak Flexi Income Scheme will under normal circumstances predominantly invest in debt instruments with maturity of more than one year. Crisil Composite Bond Index will be the relevant benchmark in this case.