The Hindu Business Line : MFs' IPOs flourishing with funds

BY the time you read this on Monday morning, the news that Reliance Equity Opportunity Fund has collected nearly Rs 1,800 crore will be stale. What will not turn stale is the eagerness displayed by investors to allocate fresh money in IPOs of equity funds.

The latest mobilisation figure ranks among the highest of its kind - it remains to be seen whether forthcoming offers can go beyond what was garnered by Reliance MF or some of the others before it.

Before you can blink, other initial offerings are claiming a piece of the action. There is actually a whole lot of them on the table right now, including ABN Amro Opportunities Fund and Fidelity Equity Fund.

Others are waiting to be launched, while some have just been sent to SEBI for clearance.

However, new investors need to realise that equities are a bit shaky at the moment and returns will not come to them from Day One. A declining stock market - we are seeing one today - may spoil their happiness, at least in the initial days.

In fact, prices have already weakened to an extent, a trend that is reflected in NAVs of equity funds. It has to be seen how investors react to the situation and whether their allocations to IPOs are affected.

This brings us to a phenomenon that has largely gone unnoticed in MF circles: Performance of FMGC funds in the past 12 months or so. As everybody knows, FMCG stocks have remained out of favour for a long time. However, as things stand, these funds have managed to beat their more broadbased counterparts; in fact, they are next only to banking funds in terms of one-year performance. This signals a marked change in their fortunes.

As Value Research puts it, as on March 22, banking funds have provided 54 per cent, while FMCG funds have given 51 per cent.

On another front, the impact of the Budget is sinking in quickly. MFs are confident that budgetary provisions will pave the way for higher investible incomes. Their clients will be able to choose across a fairly wide range of asset classes.

Distributors, needless to say, are doing their bit by directing investors towards equity products, including tax-saving schemes. Many of the latter have diversified portfolios, which have performed reasonably well in recent times.

At the end, let us draw your attention to a recent study undertaken by a distribution firm, pointing out that investors should never allocate fresh money based solely on past performance of schemes. For instance, running after the previous month's performers would have been a fruitless exercise for MIP investors in 2004 - even a marginal change in asset allocation would have created a huge difference in the MIPs' achievements in that year.

The point is, a fund cannot win the race every time - all fund managers have their lows and highs. MIPs with higher equity allocation simply scored more when stocks were looking up, a trend that all potential MIP investors should realise as they prepare their asset allocation strategy.

The distributor has used this as the background for a caveat: "There is no point chasing last month's toppers, as they may not be amongst the toppers in the next month, or worse, during the whole year". Makes sense, don't you think?

Feedback may be sent to nilanjan@thehindu.co.in

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