The Hindu Business Line : In all but name

EQUITY funds are seriously in the news these days, thanks to the sustained interest shown by investors. Sections of the market have been taking to equity funds with considerable gusto, after deciding to overlook debt, at least partially.

Assets that are being managed by these funds are on the rise, a trend that becomes evident when one compares the month-on-month figures.

A number of new equity products have come into play in recent days, introduced by quite a few fund houses eager to woo investors with more appetite for risk.

Barring a few exceptions, these are all diversified schemes, their innovative (and sometimes, thematic) names notwithstanding.

The point is, the newly-launched products have added to the diversity that already exists in the realm of equity funds. And so, investors these days may well find themselves faced with such terms as Global, Dividend Yield, Contra or even the enigmatic Core & Satellite - all of them quite a distance away from simple (perhaps, even old-fashioned) tags such as Growth and Equity.

Do these names confuse the average investor? The answer may not be simple, not when investment circles underline the importance of product differentiation.

The investor, it is pointed out, needs to be told in no uncertain terms that Fund A is not the same as Fund B, although the two may follow similar asset allocation strategies.

Fund houses also suggest that some of the new-generation funds are theme-centric. A scheme based on the principle of investing in high dividend yielding stocks should, therefore, carry an appropriate name. Ditto for a scheme that follows a contrarian strategy.

While variety is welcome, funds need to realise that not all classes of investors are discerning enough.

In other words, you may well appreciate UTI Midcap but DSP Merrill Lynch TIGER may baffle you at first sight!

Take, for instance, Sundaram Leadership Fund, a scheme that seeks to identify `leaders'. The aim here is to pick up companies that occupy the top slots in their sectors in terms of net revenue or total income.

Now, an investor should ideally grasp the whole issue before he or she actually puts in money.

Especially so when at the end of the day Sundaram Leadership presents a broadbased portfolio, with stock representing as many as 20 or so sectors and sub-sectors.

Given the recent trends, there will soon be greater variety and many more innovative products. Funds will be forever eager to shore up their asset base, courtesy newer and smarter schemes.

Product names too will become more complicated. Is there a way out, you will wonder. Probably not, but what is needed at this juncture is education, to be imparted with a view to raise the level of awareness among investors.

While fund houses should try harder at educating clients, they should also necessarily urge distributors to understand each investor's unique requirements.

Distributors need to realise that people don't lose only money when they deal with the wrong financial products. Entire reputations may be wasted that way.

Feedback may be sent to nilanjan@thehindu.co.in

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