The Hindu Business Line : `GenNext hopes to ride consumption boom'

AFTER being absent from the new fund scene for over two years, Birla Mutual Fund plans to unveil a new offering this month. Birla India GenNext Fund is a theme fund that will invest in sectors that it believes will benefit from the consumption boom fuelled by the changing demographic profile of India. Mr A. Balasubramaniam, who heads Sales and Business Development for the fund house, takes a few queries on the fund:

What is the central premise on which this fund is based?

We believe that India is on the verge of a consumption boom akin to the one witnessed in America between 1960 and 1980 because of the baby boomer generation. In India, as you already know, there is a demographic shift in favour of the 14-30 age group.

The ratio of dependents to the working population is set to fall. Both these trends suggest an expansion in disposable incomes. A change in mindset is also causing a clear shift in consumption patterns.

There is a clear trend of lower spending on basic necessities and higher spending on high-value goods. The GenNext Fund hopes to invest in companies that will benefit from this consumption boom.

But that could include almost the entire universe of companies. What filters will this fund apply?

We will be focussing on companies that derive at least 50 per cent of their revenues from direct sales to end-consumers.

We will also be looking for companies with strong brand identity, distribution reach, strong cash generation and pricing power.

We will focus on sectors such as automobiles, retail finance, media, personal care, healthcare, durables, hospitality and retail for this fund.

This apart, we will also put each stock through the usual rigours of our investment process.

How will this fund allocate investments between large and mid-cap stocks?

We will not be committing to any pre-determined allocation between large and mid-cap stocks. We feel that a fund that uses market-cap based selection may carry higher fund manager risks.

Whether large or mid-cap stocks will outperform the markets over the next few months, can be quite a difficult call to make.

The Alliance Buy India Fund appears to have a very similar theme. How is this fund different?

This fund will have a broader sector profile. For instance, we plan to invest in sectors such as automobiles, banks, hospitality and financial services, which the Alliance fund doesn't usually own.

How are you treating your initial issue expenses for this fund?

We have capped the initial issue expenses at 4.25 per cent. This limit includes the entry load of 2.25 per cent that will be used to meet part of the expenses, such as distributor compensation. The expenses will be amortised over a five-year period at 0.4 per cent a year.

But we have decided to reduce the annual recurring expenses of the fund to the extent of the amortisation, so that investors who enter the fund in the initial period will not bear a higher burden than those who enter at a later date.

(The offer opens on June 14 and closes on July 12. Readers are requested to compare the new fund with similar offerings already available in the market before making an investment decision.)

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