Newspaper reports in a leading daily reveal that Alliance Capital Mutual Fund (MF) has outlined plans to launch three sector-specific funds.
Currently, Alliance Capital MF offers investors seven schemes (all open-ended). Total assets under management are in excess of Rs 12 bn.
Alliance MF plans to launch three funds which will cater to a specific investment theme viz. Alliance Buy India Fund, Alliance New Millenium and Alliance Basic Industries Fund.
Alliance Buy India Fund will focus on businesses driven by India's large population and inherent consumption patterns. The focus of the scheme will be consumer and healthcare sectors and include businesses that derive a large percentage of their revenue from products or services supplied to other consumer companies.
Alliance New Millenium will make investment in technology and technology-dependent companies. These will include an assortment of hardware, peripherals and components, software (products and services), telecom, media, internet and e-commerce.
Alliance Basic Industries Fund will focus on investing in companies sensitive to economic cycles and commodity pricing cycles.
Alliance MF is hopeful of duplicating the success of other MFs like Kothari Pioneer Unit Trust of India and State Bank of India (SBI). Others MFs to have experimented with sectoral funds include Prudential-ICICI and Tata MF.
The returns of investing in sector-specific funds can be high as funds are invested in a particular sector, and there is no diversification. However, this also increases the risk factor as the fund manager does not have the liberty to invest in other sectors, if stocks in the target sector are witnessing a downturn. In fact this is exactly what happened to MFs like Kothari Pioneer, SBI and UTI, which witnessed sharp decline in their net asset values (NAVs) subsequent to the recent meltdown in software and pharma stocks.
In order to curtail marketing costs, some funds (UTI, SBI) have also launched umbrella funds. Such funds have a common corpus with options of investing in sectors like pharma, software and fast-moving-consumer-goods (FMCG).