NFO NEST
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.