The Hindu Business Line : Investors can dabble with variety of schemes

A first-time visitor casually scanning the country's asset management landscape may well be amazed by the sheer variety of funds that have come into being in recent times. Tell him about the imminent arrival of so many others, and you may indeed find yourself in the company of someone who is truly staggered. Welcome to the land of the possible, where product innovation is a byword, thanks to a set of very talented people who work for our fund houses.

A proliferation of product categories - we are not talking about hybrid products with various combinations of debt and equity, nor are we referring to clever things like insurance wraps - is a hallmark of a progressive system. Or so would one like to believe. Witness the assortment of newer themes that have been tested during the last three years or so, coinciding with extremely bullish sentiments. You will know that the belief is not unfounded.

The point is, there is sufficient scope for mutual funds to introduce even newer varieties of funds. The market has to be developed, courtesy awareness, education and branding.

Gold ETFs, for instance, will require fund houses to spend a lot of time on creating awareness. So will commodity funds (if and when they are brought out). After all, these products will come as completely new animals. Investors, who will have no historical performance and track record to go by, will be expected to educate themselves properly before they make commitments.

A point here. Our last column on index funds produced a few responses, one or two of which were particularly interesting. A note sent by a reader has referred to inverse index funds, which he thought were a good option for smaller investors, including those who wanted to take positions for only a short while.

Such funds, he has further argued, will provide relief at critical times. The market, after all, will come off from its high some day or other, as it has happened so many times in the past. Given this context, there will be need for inverse index products.

Fund houses, as it has been pointed out in the past, will generally roll out products only when they feel these will enjoy sufficient demand. From their perspective, they are right. Why should they introduce something that cannot be sold? What is the point in bringing something to the table for which there will be little or no response?

For the seeker of alternative options, however, this argument will not be completely valid. Someone who hunts for, say, the right inverse index opportunities may well be frustrated for want of good choices. So will be the case for someone who wants a fund that restricts itself only to cement and steel. And if there can be a pharma fund, there can certainly be one for textiles! Or for engineering!

There is of course a major counter-argument and we will use it to end this column. You may run into serious risks if you choose to put in a lot of your surplus money in such a narrowly-ranged sectoral fund, one with a very restricted investment universe. Such a fund should, at best, be an addition to your overall portfolio, a device to enhance returns, a way to boost potential reward at the cost of increased risk.

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

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