Monday, February 22, 2010

February 2010

The year 2010 did not start on a great note for the Indian mutual fund industry. In fact, after reaching an all-time high in November, 2009, the assets under management of the industry have been dipping consistently. The industry's AUM reached a record Rs 805,684.48 crore in November, 2009. Thereafter, it fell in December, 2009 by 1.62 per cent to Rs 792,665.68 crore. The opening month of 2010 was no better. Assets dipped by as much as 4.15 per cent to Rs 759,791.15 crore. However, when viewed in a proper perspective, the assets of the industry grew substantially by 65% from a modest Rs 459,945.24 crore in January 2009. The recent negativity, however, shows almost across the industry. Out of a total of 37 fund houses, 22 have seen a dip in their assets, the highest drop being registered by Edelweiss Mutual Fund at 14.28 per cent. There were four other fund houses that saw a dip in their assets by over 10 per cent.

Swimming against the tide strongly were Baroda Pioneer Mutual Fund and Sahara Mutual Fund, which saw an increase in their assets by 23 per cent and 21.87 per cent respectively. However, there was no change as far as asset hierarchy was concerned as the top three fund houses, Reliance Mutual Fund, HDFC Mutual Fund, and ICICI Prudential Mutual Fund maintained their respective positions. This was despite the fact that all three saw a drop in assets - Reliance Mutual Fund saw a fall of 2.28 per cent and HDFC Mutual Fund fell by 2.46 per cent. But it was ICICI Prudential Mutual Fund that saw the biggest fall in assets among the top three fund houses to the tune of 4.93 per cent. Reliance and HDFC have seen a fall in their assets for two consecutive months now - in December 2009 they fell by 1.86 per cent, and HDFC Mutual Fund by 5.09 per cent. ICICI Prudential Mutual Fund remained in the green in December as its assets rose by 0.36 per cent. The reason that is causing the greatest pain to the industry is the correction that the stock markets witnessed then, as well as banks staying away from the fund industry on the express orders of the RBI. Another factor that has conspired to drop the assets is the ban on entry loads that has caused the inflow tap to slow down as distributors and agents have virtually stopped selling mutual fund products.

Equity mutual funds collected Rs 1,250 crore in January, recording their first net inflows after five months. But most of it came from high networth individuals (HNIs), who tend to get in and out of funds. Between August and December 2009, about Rs 7,100 crore flowed out of such funds as investors booked profits and financial advisers held back recommendations on fears a new rule banning entry fee charged by funds would cut their fees. A revival in net flows into equity funds is hardly a trend reversal as tenacious retail money and independent financial advisers who bring in small investors continue to shy away from the market.

CNBC-TV18 - CRISIL Mutual Fund Awards has been presented to Reliance Mutual Fund for outstanding mutual fund performance for the year 2009.

Canara Robeco Income Fund has been ranked as an ICRA Seven Star Fund in the category of ‘Open Ended Debt – Long Term’ schemes for its 3 years performance till December 31, 2009. Canara Robeco’s schemes have been rated in the ‘Platinum’ category by Economic Times (Investors Guide) in their mutual fund tracker for the quarter ended September 2009. (The 5 schemes included: Canara Robeco Equity Diversified, Canara Robeco Infrastructure, Canara Robeco Equity Tax Saver, Canara Robeco Monthly Income plan, Canara Robeco Income).

UTI Mutual Fund has been awarded the ‘Most Investor-Friendly Fund House of the Year’ by CNBC-TV18-CRISIL Mutual Fund Awards 2010. This award, the first of its kind in the Indian mutual fund industry, recognizes performance on three parameters- communication to investors, focus on retail investors and geographical penetration. UTI Dividend Yield Fund has won the CNBC-TV 18 - CRISIL Mutual Fund of the Year Award in the Equity Diversified Funds Category. The award is based on consistency of the scheme’s performance in the four quarterly CRISIL CPR rankings released during the calendar year 2009.

Piquant Parade

Reality firm DLF has sold its entire 39 per cent stake in mutual fund joint venture DLF Pramerica Asset Managers to partner Prudential Finance as its participation is not in conformity with SEBI's modified guidelines. As per the SEBI guidelines, DLF does not qualify to be a sponsor for a mutual fund with its less than five years of track record in financial services. DLF had in December 2007 signed an agreement to set up a mutual fund joint venture DLF Pramerica Asset Managers, with Prudential Finance picking up 61 per cent and the remaining to be subscribed by DLF. Following DLF's exit, the AMC business would be named as Pramerica Asset Managers Pvt Ltd. However, the life insurance venture between the two parties would continue to work as usual.

Public-sector bank, Bank of India, has entered into a tie up with Birla Sun Life Mutual Fund for the distribution of mutual funds products through its 3,100 branches.

About two months after their launch, activity on mutual fund platforms of stock exchanges remains comatose, as investors continue to stick to the age-old system of buying and selling products through distributors. This is because buying or selling mutual funds through stock exchanges requires opening a demat account and a large section of mutual fund investors do not have one. Moreover, for investors, whose purchases are small in quantity, there is no cost advantage. Over half of the AMCs are yet to list their products on stock exchanges. Mutual funds are trying to project their products as long-term ones, while brokers will find it viable only if they are able to churn volumes. There is a clash in the business philosophy here. Due to lack of clarity about revenues from this business in the foreseeable future, most brokers are unwilling to invest in a big way to service mutual fund trades.

Regulatory Rigmarole

The Securities and Exchange Board of India (SEBI) directed mutual funds to mark-to-market debt and money market securities with residual maturity of 91 days. The market regulator has said that the mutual funds will have to value papers of up to 91 days at weighted average price. The regulator also asked mutual fund firms to disclose transaction details on a daily basis, including inter-scheme transfers. The changes will come into effect from July 1 2010. Currently, money market instruments are not mark-to-market. In addition, only debt securities of above 182 days of maturity are subject to mark to market.

Market regulator, SEBI, standardised the risk warning that mutual fund firms have to display in the audio-visual advertisements, with a view to helping the investor to understand the message clearly. The new rule, which will be effective from May 1, 2010, stipulates that the warning in audio-visual advertisements should be displayed and both the visual and the voice-over of the standard warning should be run for at least 5 seconds. No addition or deletion of words should be made in the standard warning statement.

SEBI is set to launch 1,500-2,000 super-ATM centres across the country in the next 12-18 months for the growth of the mutual fund industry. To facilitate investments in mutual funds and availability of information to investors, a huge infrastructure needs to be created. At the press of a button in super-ATMs, investors would be able to transact and get all the information about mutual fund schemes. It will also send queries and receive information as well. SEBI will help the mutual fund industry in its efforts to increase financial literacy. Investors should get the scheme information document in regional languages.

Market regulator Securities and Exchange Board of India (SEBI) is working on a plan to bring mutual fund distributors within its purview. The distributor industry is today plagued by acute mis-selling and SEBI’s entry could change the way you buy and sell mutual funds.

The mutual fund industry is poised to grow to Rs 30-lakh-crore in the next 5 years. The number of unit-holder accounts is poised to grow to 5-crore in the next 5 years. A total savings of USD 1.9-trillion would be seeking avenues for investment by 2015. India’s mutual fund industry is lobbying with the finance ministry to extend tax benefits, currently available to equity-linked savings schemes with a three-year lock-in, to all equity mutual funds. This move is aimed at encouraging retail investors to invest more in equity schemes as an alternative to other tax-saving products. Further, the mutual fund industry has reiterated its long-standing demand to give equity-oriented fund of funds (FoFs) the same taxation status of equities. FoFs invest in schemes of other mutual funds. Currently, equity-oriented FoFs pay a dividend distribution tax (DDT), while equity schemes are exempted. FoFs also do not offer long-term capital gains tax exemption despite exposure to equity schemes. Further, the element of double taxation involved in charging STT when investors redeem their units, should be applicable at one level only. This budget wish list, if implemented, apart from bringing about radical changes in the regulatory landscape, will pave the road ahead for the industry.

Monday, February 15, 2010

February 2010

Is the NFO party over?

Gone are the days when fund houses threw lavish distributor parties, advertised extensively and organized countrywide road shows to sell NFOs. Post-entry load ban, fund marketers are on a cost-cutting spree, downsizing the paraphernalia which was earlier considered absolutely essential for fund-selling. From reducing the subscription period and lowering the subscription target to cutting the number of road shows and designated distributors, fund houses are leaving no stone unturned to keep marketing and sales costs under control. In the heydays of the bull-run, large fund houses organized road shows in as many as 150 towns. This number has drastically come down to as low as 25 cities. Printed brochures and promotional handouts have come down from about five lakhs in 2007 to just about one lakh in 2009. The number of key distribution partners, which numbered about 30-35 in 2007 and 2008, has come down to just about 10 -15. This has led to a sharp decline in retail applications. Most fund houses are now relying on bulk money, which they receive as investments from their parent company or bank, to ramp up their initial mobilisation. Most fund houses have stopped giving extravagant gifts and incentives to distributors. Fund houses no longer launch similar-sounding products. Most fund houses are coming out with newer products only after thorough considerations.

Such a bleak scenario notwithstanding, six NFOs have found their place in the NFO Nest in February, 2010.

Bharti AXA Focused Infrastructure Fund

Opens: January 20, 2010
Closes: February 15, 2010

With more than 15 schemes that offer investors an opportunity to invest in the infrastructure sector either in India or worldwide, Bharti AXA Focused Infrastructure Fund is the latest entrant. The fund is an open-ended equity scheme that invests in a diversified portfolio of infrastructure companies. The fund has made efforts to distinguish itself from peers by defining its investment mandate in greater detail. The fund’s mandate restricts the fund manager to eight sectors that are primarily engaged in infrastructure and related activities. The sectors include cement & cement products, construction, energy, industrial manufacturing, metals, services, telecommunication, and core sector-related financial services. The fund also identifies the sectors in which no investments will be permitted. These include automobiles, banking and financial services (other than those covered in the above list), services (other than infrastructure related), chemicals, consumer goods, fertilisers and pesticides, information technology, paper, pharmaceuticals, and textiles. By clearly defining the investment universe, the fund aims to become a ‘focused infrastructure fund’. The fund house claims that the focus on core infrastructure had rewarded the investor better than the ‘diluted or extended infrastructure’ universe, which also includes sectors such as automobiles and financials.
The CNX Infrastructure index has outperformed the broader CNX Nifty index by 19% CAGR over a period of three years. This trend is likely to continue owing to the increased outlay for infrastructure both from government and public-private partnerships. The quantum leap in infrastructure spending by 145% between the tenth and eleventh Five Year Plans substantiates the above-mentioned point. An adverse change in government policies and budgeted allocations towards the infrastructure developments can mar the prospects of the fund in this sector. A slowdown in the economy is bound to hamper returns for the fund. The fund is benchmarked against the BSE 100.

Religare Gold ETF

Opens: January 25, 2010
Closes: February 23, 2010
Religare Gold Exchange Traded Fund, an open ended Gold Exchange Traded Fund will be managed passively with investments in physical gold and will endeavor to track the performance and yield of its underlying asset viz. gold. The fund intends to follow a fully invested approach and will have a minimum exposure of 90% of its assets in gold and gold bullion at all times. One unit of Religare Gold ETF will represent 1 gram of gold. The fund may buy and sell gold at different points of time during the trading session which may or may not correspond to the closing price of gold and maintain cash to meet its liquidity requirement. This may result in the Scheme having tracking error and to that extent the performance of the Scheme may not match the performance of its underlying asset. However, the fund manager will try and minimize the tracking error as far as possible. The fund is benchmarked to the Price of Gold.
The launch of Religare Mutual Fund’s Gold exchange Traded Fund (ETF) has expanded the segment’s universe. Till now, there were six gold ETFs - the oldest being Gold Benchmark ETF, which was launched way back in February 2007. The other Gold ETFs in the market are Kotak Gold ETF, Quantum Gold, Reliance Gold ETF, SBI Gold ETS, and UTI Gold ETF.

Sundaram BNP Paribas MIP (Conservative and Aggressive) Plans

Opens: January 25, 2010
Closes: February 23, 2010
Sundaram BNP Paribas Mutual Fund has launched Sundaram BNP Paribas Monthly Income Plan – Conservative & Aggressive Plans, an addition to the existing MIP, which is a moderate plan. The primary objective of the scheme is to generate regular income through investments in fixed income securities and the secondary objective is to generate long term capital appreciation by investing a portion of the scheme's assets in equity and equity related instruments.
For Conservative Plan, the fund will invest 90% to 100% of assets in government securities, debt securities, money market instruments & cash (including money at call, other than securitized debt). It will invest up to 10% of assets in equity & equity related securities. Investment in securitized debt will be upto 75% of the net assets of the Plan.
For Aggressive Plan, the fund would allocate 70% -100% of assets in government securities, debt securities, money market instruments & cash (including money at call, other than securitized debt). It will further allocate up to 30% of assets in equity & equity related securities. Investment in securitized debt will be upto 70% of the net assets of the Plan.

The performance of the fund would be benchmarked against CRISIL MIP Blended Index.
Edelweiss Income Advantage Fund

Opens: February 10, 2010
Closes: February 17, 2010

Edelweiss Income Advantage Fund, an open ended income scheme, aims at generating returns that are consistent with moderate levels of risk and liquidity through active management of a diversified portfolio consisting of debt and money market instruments, securitized debt, Government securities, and equity and equity related instruments. The fund will look to invest 80-100 per cent in debt and money market instruments, but will also leave open an investment window of up to 20 per cent in equity. The performance of the fund will be benchmarked against the Crisil MIP Blended Fund Index.

Birla Sunlife Capital Protection Fund

Opens: February 5, 2010
Closes: March 5, 2010
Birla Sun Life Capital Protection Oriented Fund Series 1 offers those investing in traditional investment options like fixed deposits, an attractive alternative. This is a 27-month close-ended fund which seeks capital protection by investing 90% of the capital in high quality debt securities maturing in line with the tenure of the scheme and seeking capital appreciation by investing the remaining 10% of the capital in the equity market. Investors with safety on their mind and with a time horizon of 2-3 years are the target audience. Basically, the fund offers investors an opportunity to invest a small portion of their portfolio in equity market with low risk. The fund has been rated AAA by CRISIL and has been benchmarked against CRISIL MIP Blended Index. The redemption of units shall be allowed only at the maturity of the scheme. However, the fund shall be listed on stock exchanges, and investors can buy or sell units of the fund
Hang Seng Benchmark Exchange Traded Scheme

Opens: February 15, 2010
Closes: February 24, 2010
Hang Seng BeES, which tracks the Hang Seng on a real-time basis, will be the first foreign ETF which will enable investors to take exposure to a hitherto closed market like China. There are 42 constituent companies in the Hang Seng index, including some familiar to Indian investors – HSBC Holdings, Hutchison Whampoa, Cathay Pacific Airways, China Mobile, and Petro China.
The asset allocation of Hang Seng BeES will be 90-100% into securities constituting the Hang Seng Index and 0%-10% into money market instruments, low G-Secs, bonds, debt instruments, cash at call and mutual fund schemes/overseas exchange-traded funds based on the Hang Seng index. The fund is ideal for diversification as Correlation of Hang Seng Gross TRI with S&P CNX Nifty Total Returns index is 0.64.

Reliance Hybrid Savings Fund and Religare Midcap Fund are expected to be launched in the coming months. The fact that only two offer documents have been filed bears testimony to the fact that there is lack of distributor interest after the no-entry load regime mandated by SEBI in August 2009. Mutual funds did try to work around it, but could not arrive at a good business model. After the no-entry regime, the industry had brought out four NFOs in August, nine in September, five in October, seven in November and four in December according to Value Research data. However, these NFOs garnered only Rs 1,916 crore in the August-December 2009 period. In the five months leading up to August, 2009 the industry had mopped up Rs 4,260 crore through 10 offers, according to data from the Association of Mutual Funds of India.

Monday, February 08, 2010

February 2010

Regular rebalancing to retail rescue...

Long term equity will create wealth ONLY if we follow the rules. There are three simple rules: invest regularly; make an asset allocation; rebalance portfolio. It sounds easy but almost impossible to do. Investing regularly is now more or less under control with the emergence of SIPs as viable investment vehicles. But the other two are still hard nuts to crack. You need a product that will deploy your savings in the chosen asset allocation and then rebalance the portfolio according to the ratio chosen. Fund of Funds is the answer. You can park your funds in those FoF schemes which match your investment objectives, rather than in different schemes of a mutual fund and keep track of your NAVs on payment of single fees to the FoF.

Fidelity Multimanager Cash FoF and Optimix Asset Allocator Multimanager FoF have lost their sheen and have been shown the exit door. The following are Fund of Funds that have stood the test of time and retained the glittering glory and the much sought after status of a GEM in 2010.

FT India Life stage Fund of Funds Gem
Leading through life stages

Franklin Templeton Lifestage Fund of Funds offers a choice of five plans that reduces the equity component as you move up the age ladder or down the risk ladder and reviews its investments once in six months. FT Lifestage FOF adheres to its strategic asset allocation in each plan by judiciously allocating funds to five of its funds – Franklin India Bluechip Fund, Templeton India Growth Fund, Franklin India Prima Fund, Templeton India Income Builder, and Templeton India Income Fund. The schemes are the Rs. 14.47 crore 20s Plan, with 80% in equity and a one-year return of 71.29%, the Rs 8.56 crore 30s Plan, with 55% in equity and a one-year return of 59.92%, the Rs 14.63 crore 40s Plan, with 35% in equity and a one-year return of 43.2%, Rs. 12.57 crore 50s plus Plan, with 20% in equity and a one-year return of 28.99% and Rs. 180.61 crore 50s Plus Floating Rate Plan, with 20% in equity and a one-year return of 20.67%. For investors in different stages in their journey through life, using these schemes for no sweat investing makes sense.

ICICI Prudential Advisor Series Gem
Tactical advice

ICICI Prudential Advisor Series has four funds - varying in investments as per the risk appetite with the Aggressive FoF being heavy on equity and the Very Cautious FoF tapering down to very little equity. The Rs.8.05 crore ICICI Prudential Very Aggressive Advisor FoF, with nearly 85% in equity has given a one-year return of 66.39%. The Rs. 7.72 crore Aggressive FoF, with 75% in equity has given a one-year return of 54.65%. The equity component and the one-year returns have been 60%, 35% and 0% and 41.94%, 27.71%, and 4.59% in the case of the Rs. 7.71 crore Moderate, Rs 3.67 crore Cautious and Rs. 1.45 crore Very Cautious FoFs respectively. Tactical change in investment mix has worked for ICICI Prudential Advisor Plans at various stages, thereby, enhancing the value of the advice.

Birla Asset Allocation Plan Gem
In defence of value

Interestingly, this is one of the rare fund of funds which has an open mandate to invest 30 per cent of its corpus in well-performing funds outside the Birla Sunlife umbrella of funds. But the current portfolio they hold in all their 3 plans - Aggressive, Moderate and Conservative - does not include any outside fund. Investors with aggressive risk appetite can look at the aggressive option, which currently has 77 per cent of its corpus in equity and 23 per cent in debt. The one-year return of this Rs. 10.03 crore fund is 72.04%. The moderate fund has about equal weightage in debt and equity (55% at present). This Rs. 5.53 crore fund earned a return of 50.14% over the past one year. The fund’s equity portfolio appears to hold a value strategy what with higher exposures to sectors such as IT and financial services, that hold attractively valued stocks. The fund’s debt portfolio also attracts attention for its strategic mix of short-term, income and bond funds from the Birla stable. The Rs. 6.17 crore conservative plan invests nearly 80 per cent in income and bond funds with a one-year return of 22.41%. The conservative option loosely follows the Monthly Income Plan structure in its asset allocation, without the monthly dividend payout feature, of course. The lack of monthly payouts may be an advantage, as it removes the need for the fund to churn its portfolio and book profits at monthly intervals to meet dividend commitments. Over the past ten years, the worst yearly returns from this fund came when its NAV lost 6.5 per cent (in 2008, when both debt and equity options took a hit). But its best yearly show saw its NAV appreciate by over 24 per cent (2009) — a good risk-reward ratio! The fund has managed this show by actively shuffling the debt portion of its portfolio, even while picking the more defensive equity funds (the Index Fund, MNC Fund and Dividend Yield Fund) from the Birla repertoire for the equity portion.

FT India Dynamic PE Ratio Fund of Funds Gem
Dynamism in seeking safety and opportunities

The Rs. 416.8 crore FT India Dynamic PE Ratio FoF follows a dynamic and systematic asset allocation strategy. The fund changes its asset allocation based on the weighted average PE ratio of the NSE Nifty Index. At higher PE levels, it reduces allocation to equities (exposure to Franklin India Bluechip Fund) in order to minimise downside risk. When the PE is low, the fund would invest in equities to gain from a potential upside. While the downside is limited, the gains could also be limited because by selling in a rising market, the fund may not be able to fully capitalise on the further upside, if any. In that scenario, a fully-invested equity fund would generate superior returns than this PE ratio based fund. It is a safe haven for risk-averse investors. This fund is the only fund of funds in this category and invests in Franklin Bluechip and Templeton India Income funds. FT India PE Ratio Fund has earned 59.31% in the last one year. The fund has strictly adhered to its mandate and sought safety and opportunities with equal dynamism and has exhibited an exhilarating performance.

Monday, February 01, 2010

Fund of Funds

One-stop shop…

Marketed as an investment one-stop shop, multi-manager funds are designed to make an investor’s life easier by bringing together a range of specialist managers into a single fund. There are two types of multi-manager funds: those that invest in funds which are called Fund of Funds (FoF) and those which invest in shares through appointed investment managers called Manager of Managers (MoM).

…offering the ‘best’ of the best

Many fund houses have tried to tap investors with fund of funds — an offering that is an amalgam of the best performing funds. The portfolio of fund of funds offers benefits of diversification into different funds comprising of asset types like equity/debt/money market instruments and even non-financial assets.

Fund houses such as Birla Sunlife Mutual Fund, Franklin Templeton India Mutual Fund, ICICI Prudential Mutual Fund, ING Vysya Mutual Fund (brand name of Optimix), and Kotak Mutual Fund that offer FoFs have a longer track record in the Indian market and a relatively larger universe of schemes to choose from within their respective fund house. Birla, for instance, has over 15 open ended equity funds in its stable. Others, such as the more recently launched Fortis Multi-Manager Fund, provide the flexibility to invest in other fund house schemes as well. In this context, Fidelity, at present, has about four equity funds and a similar number of debt funds under the Indian AMC. Further, investment strategy (in equity) across Fidelity funds (although with different themes) is not too divergent as most of them follow a bottom-up stock picking approach without any sector or market-cap bias in even some of the schemes. However, the fund house has stated that it plans to invest in future schemes of Fidelity India as well as in the schemes of Fidelity International. The recently launched (January 2010) Fidelity Global Real Assets Fund is an open-ended fund of funds scheme that combines thematic thinking and a bottom-up stock idea selection. The fund looks to generate growth from a portfolio invested in Fidelity Funds – Global Real Assets Securities Fund, which is an offshore fund. The Global Real Assets Securities Fund invests in equity securities all around the world leading to a diversified exposure spanning commodities, property, industrials, utilities, energy, materials, and infrastructure.

The gloom in the glitter…

Many FoFs were able to limit their losses at the height of the global financial crisis when markets went into a tailspin. For example, while the worst performing equity diversified fund had lost 80 per cent and the Sensex had lost 50 per cent, the worst FoF had lost only 45.47 per cent. Given their flexibility to increase debt allocation, a good number of equity FoFs held debt/cash and cash equivalents. This appears to be the reason for their relatively better performance compared to diversified equity funds that cannot go too high on debt.

But the scenario changes when one compares the best performing funds. Birla Sun Life's Asset Allocation Aggressive (FoF) was among the best performers with returns falling 31.38 per cent. UTI MNC, the best performer in the equity diversified category, has lost slightly less at 31.05 per cent. The returns are quite comparable. In the case of debt schemes, the scenario is slightly different. While the best bond and gilt funds have returned almost 30 per cent, the best returns from a FoF scheme in this category is just 17.14 per cent.

The returns certainly do not justify the claims that FoF managers make, especially because of the higher fund management cost. All FoF schemes charge an expense ratio that is 0.35 - 0.75 per cent more than equity and debt funds. And that is simply because there are two expenses involved – one charged by the FoF and another charged by the schemes where the money is invested.

The big deterrent is that FoFs are classified as debt funds for tax treatment irrespective of whether these funds invest in equity or debt. The tax on short-term capital gains is 30% as opposed to 15% in the case of equity funds. The tax on long-term (over one year) capital gains is 10 per cent without indexation and 20 per cent with indexation. On the other hand, there is no long-term capital gains tax on equity diversified funds. FoFs cannot, therefore, match the returns of equity funds over a longer period of time.

Besides returns and tax issues, the investment style of funds is also an issue. At present, only ING Optimix, Fortis, and Kotak invest in schemes of other funds. The rest prefer their own fund’s schemes. In addition, the fund manager is allowed to shift between funds during the year to enhance returns. Under such circumstances, the entire objective for investors, who are willing to pay a bit more for best results, is defeated. The investor is only exposed to fund management style and risk outlook of a single asset management company.

All said and done, the average AUM of FoFs rose from Rs 749 crore in January 2009 to Rs 1,044 crores in December 2009. Moreover, the purchase of FoFs has surpassed redemptions since May 2009. This is, indeed, a welcome development.

Why traverse the fund of funds route?

Globally, fund of funds and manager of managers are gaining increasing recognition as viable and undeniable investment opportunities. The recent launch of Fidelity Global Real Assets Fund and the impending launch of three gold Fund of Funds by Benchmark, Reliance, and UTI bear testimony to the fact that India will not be left far behind. Reversal in the tax anomaly regarding FoFs and a broader view by some funds which confine themselves to only their own funds and remain ‘fettered’ will definitely offer a fresh lease of life to FoFs and build a strong case for treading the FoF route, which undoubtedly makes immense investment sense.