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Sunday, Apr 14, 2002

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Focussing on theme funds

ASSET management companies are looking to enhance inflows into their mutual funds, and theme funds are one option. Recently, Mr T. P. Raman, Managing Director, Sundaram Newton Asset Management Company, said that they were looking to launch a theme fund a la DSP Merrill Lynch's Opportunities Fund.

Theme funds invest in securities which meet a specific criterion or which have the same characteristic. Sector funds also fall in this category. MNC Funds too may be characterised as theme funds. The mutual fund industry has a few non-sector, non-MNC theme funds too. Examples are Zurich India Capital Builder, DSP ML Opportunities Fund, Sun F&C Resurgent India, JM Basic and Pioneer ITI Internet Opportunity Fund. In fact, some diversified equity funds also say they follow a particular theme. Examples are Templeton India Growth and HDFC Growth. In both, the value-investing theme is quite evident.

Now, a few more funds are likely to be launched. On the anvil are Zurich India Leadership Fund, professing to invest only in industry leaders, and Escorts High Yield Equity Fund, an asset allocation fund that will invest in companies offering high dividend yield.

However, are these choices worth looking at? First, the theme funds now operating do not have an exceptional track record. Diversified funds have generated better returns than these theme funds. In fact, in a market where investment-worthy stocks are few, restricting the universe may not work in the investor's favour. Moreover, most Indian investors are just starting to invest in equity in an organised manner. In this backdrop, the active monitoring of investments — involving a disciplined buy-sell approach necessary to add value to investments made in such theme funds — may be missing.

On the other hand, not all theme funds need to be discarded by investors. The underlying objective behind a theme fund may be to reduce the risk involved in investing. If such a risk-reduction appears necessary and suited to an investor, investment in such funds may make sense. But without such compelling reasons, it may generally be better to avoid theme funds.

Suresh Krishnamurthy

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