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Suresh Krishnamurthy

INVESTORS in Birla IT Fund can consider paring their exposures. Birla IT Fund's performance in the last couple of years has been impressive. But its investment objectives are being changed.

In this backdrop, reducing the exposure to the fund now appears prudent. In line with the changed objectives, investors have been given an opportunity to exit without the application of any exit loads and can use the opportunity to exit from the fund. The change in investment objectives is with effect from August 25, 2003.

The name of the fund will be changed to Birla India Opportunities Fund. This suggests that the fund will practise sector allocation. That is, it will take concentrated exposures in specific sectors based on their expected performance.

It will be largely invested in, say, technology, if the manager thinks that sector will outperform.

The allocation will change when the manager perceives some other sector as capable of outperforming the market.

The change in strategy may be warranted given that the potential of the IT sector to deliver market outperformance is now subject to significantly enhanced risks. However, from the perspective of investors, the change in strategy does not reduce risks.

In fact, if the fund manager is likely to practise sector rotation, the risks are equally high. A few funds such as DSP ML Opportunties and Tata Select Sector Fund initially indicated that they would practise sector rotation. However, the strategy has now been diluted. Both the funds now sport a diversified portfolio.

Even the recently launched Tata Equity Opportunities holds a diversified portfolio and is not over invested in any particular sector. What this shows is that sector rotation as a strategy may be difficult to implement and a diversified asset allocation strategy may be favoured.

However, there are many other diversified equity funds with impressive performance record. Investing in such schemes may expose investors to a lower degree of uncertainty compared to staying invested in Birla IT Fund.

: The performance of Birla IT Fund in the last three years is not impressive when compared to a market index such as Sensex. However, the decline of nearly 15 per cent in absolute terms is impressive when compared to the decline of nearly 68 per cent registered by BSE Teck.

The performance is impressive when compared to that of peers also. However, the change in investment strategy suggests that this impressive record is now less relevant.

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