The Hindu Business Line : Do not go by a fund's name

You would definitely not find any of the funds launched in the recent times sporting such extravagant suffixes as "Midas The Goldshare," "Platinum Share", "Double Square Plus" or even a "Triple Plus" as was the case in the mid-1990s. But even now, it may be risky for investors to invest in a fund based solely on what its name conveys. There are several cases of products with different risk characteristics and portfolios, sporting similar names. There are also quite a few instances of the name of the scheme not really conveying its true character.

Masquerading under the same tag

For instance, there are stark differences between the various mutual funds that go under the banner of "Income Plus".

Birla Income Plus is just a plain-vanilla income fund whose portfolio spans the entire range of debt securities. But Sundaram "Income Plus" is an aggressive debt fund which seeks higher returns by investing outside the universe of Triple-A rated companies. Birla Bond Plus is, on the other hand, a short-term debt fund for those seeking to park their investments for a one-three-month period, investing mainly in money market and call investments. Kotak Income Plus is a conservative balanced fund, which invests up to 20 per cent of its portfolio in equities. Though these funds have similar sounding names, they cater to four entirely different classes of investors. Not surprisingly, there is also a wide divergence between the returns generated by these funds.

A misleading guide

The name of the fund may also be a less-than-accurate guide when you are choosing a fund. For instance, the HDFC Top 200 Fund is an "index-and-more" fund where over 60 per cent of the fund's assets by weight, are linked to the BSE 200 index. By this logic, an investor may be forgiven for thinking that Kotak Mahindra's K-30 is a fund which draws from the basket of Sensex stocks. But K-30 is actually a plain diversified fund which picks a number of stocks from outside the Sensex basket. And the DSP Top 100 Fund invests in the top 100 companies listed on the bourses, based on their market capitalisation which are not necessarily tied to the BSE-100 index.

Then, there are also the funds which have undergone a transformation in their investment objectives or in their portfolios, but have not changed their name to reflect this. Though its name reflects a focus on the primary market, the UTI's Primary Equity Fund is now just a plain diversified equity fund.

MIPs: A mis-named class

But as an example of a whole class of funds being sold with an inappropriate name, it would be difficult to beat the "Monthly Income Plans (MIPs)" which figure in the basket of every fund house.

To a layman seeking a monthly pension, the so-called MIP may appear to be the most suitable product to pick, going by its name alone. But in reality, with a part of its portfolio parked in equities, the MIP is riskier, and no less so than the pure debt fund.

If you are an investor who depends on his fund to pay out a steady stream of incomes month after month, and erosion in your capital is not an option, the MIP is certainly not the product for you. The "MIPs" are in reality, conservative balanced funds.

With an equity exposure of 10-25 per cent (this proportion varies across fund houses), the MIP may generate a higher level of returns than is possible from a pure debt portfolio.

But given its equity component, investors in an MIP should be prepared for blips in returns and perhaps even loss of capital, when they invest in such funds.

Regulations governing mutual funds in the US, require fund houses to stick with a name-test rule.

At least 80 per cent of a fund's portfolio has to be invested in the instruments suggested by its name. But Indian funds have greater leeway when it comes to christening their offerings.

The above instances suggest that when you invest in a fund based on the sketchy outline provided in its advertisement, you may end up with a product that is wholly out of sync with your investment needs. Make up your mind about your fund only after careful reading of the investment objectives and the asset allocation pattern detailed in its offer document.

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