Date:06/05/2006 URL: http://www.thehindubusinessline.com/2006/05/06/stories/2006050604001500.htm

Back NFO collections: MFs not yet fully invested

Nilanjan Dey

Soaring prices put fund managers in dilemma

Risky path
It is difficult to truly identify value when stock prices are generally running so high
Job of fund managers is to deploy the resources at their disposal

Kolkata , May 5

`Cash is not trash' for many of the equity funds that have come to the market this year with their NFOs. A section of the new funds are not fully investing the money that they collected during their initial offers.

A quick look at the last-available numbers indicate, ultra-liquid investments - cash or its equivalent - contribute to a significant part of the portfolios of some of these funds, many of which collected huge amounts during the NFO periods.

While investors are inclined to view the situation as one that goes against the principles of active fund management, fund houses attribute the trend to the fact that it is difficult to identify value when stock prices are generally running so high. They further indicate that efforts to attain optimal allocations continue unabated. It may be mentioned that only diversified equity funds (and not the tax-planning funds, a couple of which are also newly launched) are being considered here.

The situation seems to be quite peculiar for investors in funds such as UTI Leadership, which had January 9, as its launch date. Net current assets accounted for a rather high 22.99 per cent of its portfolio (as on March 31), the fund size being Rs 1,820 crore as on that date.

A trifle different is HSBC Advantage India Fund, which had 16 per cent in cash at the end of March. The scheme (date of allotment: February 23) had an asset base of Rs 1,741 crore and was overweight on two themes, consumption and infrastructure.

Birla Infrastructure, which managed Rs 610 crore or so at the end of March, is also a case in point. Here, cash and current assets constituted a more modest 12.14 per cent of the portfolio.

Further, Principal Infrastructure & Services, which garnered about Rs 530 crore initially and now handles Rs 500 croreor so, has roughly 10 per cent in cash and equivalent at the moment.

Mutual fund circles generally agree that the sooner allocations are done, the better it is for unit holders. A section of them, however, add a caveat - what if stocks tumble sharply immediately after all that is collected gets invested?

According to Mr A P Kurian, Chairman of Association of Mutual Funds in India, the market regulator has allowed MFs "reasonable time" - a few months - to invest newly mobilised money. "No one can wait indefinitely for valuations to come down. But investors' interests should be kept in mind as well," he quipped.

Mr S.V. Prasad, CEO, Birla Mutual Fund, agreed that it was the job of fund managers to deploy the resources at their disposal. "We are here to invest... if it is an equity fund, the money should go into good stocks in line with the investment objective. A fund that does not do this diligently is not sticking to the mandate given by investors," he noted.

The open-ended, diversified schemes that have come in the last three or four months (and are now available on an on-going basis) include Chola Contra, JM HI FI, Kotak Lifestyle, Sahara Infrastructure, Principal Infrastructure & Services, SBI Bluechip and UTI Contra. Many of these mobilised sizeable assets are from investors.

Mr Arjun Marphatia, CEO of Quantum MF, said fund managers would have to be very selective while taking a call on a market that was steeply moving upwards. "The process has to be extremely stock-specific... it is otherwise fraught with huge risks", he said. The newly launched Quantum Long Term Equity Fund has invested about 34 per cent of its corpus in stocks, leaving the rest for liquid assets.