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Suresh Krishnamurthy

IF YOU needed any confirmation of the risk involved in investing in sector funds, the changes made or planned in a few tech sector funds should drive home the point. A few technology funds are now being restructured and made into diversified equity funds.

Two of them are IL&FS e-Com and Chola Freedom Technology. Incidentally, Tata's IT Sector fund was the first to change tack. Recently, Birla IT Fund was renamed Birla India Opportunities Fund and the fund proceeded to explore investment avenues outside of the technology sector.

Prima facie, there is nothing wrong with these changes. With the returns from technology stocks subject to a lot of uncertainty and the expected returns unattractive compared to the risk involved, it is only natural that these funds are adopting a course correction.

Over time, these funds may deliver better returns precisely because they opted to change their investment strategy. In addition, investors who are not happy with the changes can anyway exit from the fund without the application of any exit loads.

However, given the level of investor education in India, it can be argued that investors are not fully conversant with the implications of the changes. Changes to the investment strategy are rarely the outcome of what the investor desires; it is thrust on them.

Given this backdrop, it would be better if the schemes are wound up and the money returned to unit-holders. In any case, if investors are aware of the implications they can re-invest their funds in any of the schemes of their choice. This would be a better alternative.

As things stand, proposals to alter the investment strategy of the technology funds smack of an attempt to retain investor money. Such an impression is not a healthy advertisement of the credentials of the concerned mutual funds.

In addition, it would also be better if other existing technology sector funds, such as Franklin India Infotech, Franklin India Internet Opportunities, Kotak Technology, Alliance New Millennium and Prudential ICICI Technology also indicate their future strategy.

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