The Hindu Business Line : Swelling new collections pose challenge to funds

How will mutual funds deploy the huge quantities of money their NFOs have lately mobilised? That seems to be the question investors are relentlessly asking, a poser that has intensified with Reliance Equity Fund's recent collection of Rs 5,000 crore.

The issue has its moorings in statistics that underline the burgeoning asset base of the MF industry, which at the end of February 2006 managed Rs 2,17,471 crore (excluding Fund of Funds data), a straight Rs 18,000 crore more than the end-2005 figure compiled by the Association of Mutual Funds in India.

A number of NFOs, including equity funds like SBI Blue Chip, UTI Leadership and Kotak Lifestyle, have closed in the last few weeks, causing the total collection numbers to swell in the process. A few offers - UTI Contra and JM Hi Fi among them - are currently open for initial subscription, while certain others (such as Fidelity MF's Special Situations and Franklin Templeton MF's Equity Income) are waiting to be launched.

Ms Dipti Neelakantan, in charge of JM MF, agrees investing in stocks when the market is near an all-time high is indeed a challenge - one that "absolutely must be overcome by identifying companies that have good prospects ahead of them". The general idea is to select stocks that will offer scope over the medium to long term, she said.

As AMFI statistics reveal, the December-February period was particularly active in terms of new launches, especially so with several leading AMCs trying to shore up their asset bases. A significant part of the collection is yet to be deployed, it is felt.

"Ultimately we will all have to be true to label. By this I mean a new fund has to invest the cash it has amassed. The sooner this is done, the better it is for investor," says Mr Nilesh Shah, CIO of Prudential ICICI MF, when asked about the allocation proposals before the close-end product that the fund house had recently mooted.

Close-ended schemes, fund managers say, are relatively better off than their open-end counterparts because redemption pressures are not that high in their case. MF circles also urge investors to become more aware of the situation (marked by high valuations) and remain committed for longer periods.

Mr N.K Garg, CIO of Sahara MF, admits that rapidly advancing stock prices are now a reality for investment professionals. The latter, he adds, will still have to construct portfolios in line with specific investment objectives.

"Investors will not like the idea if fund managers park their money in fixed deposits! They will need returns, and the only way of providing this is to recognise good stocks from among a large medley of names", he mentioned.

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