• MARCH 9, 2000

DSP Merill Lynch - Tech.com and Opportunities Funds - A Report

DSP Merrill Lynch (DSPML) has launched two new funds to add to the burgeoning list of mutual fund schemes.

The investment objective of both the new funds namely Technology.com Fund and Opportunities Fund is to seek long-term capital appreciation and income generation. The minimum application amount is Rs 5,000, and in multiples of Rs 1,000 from there on.

DSPML Technology.com Fund will focus on investing in technology and technology dependant companies. Hardware, peripherals and components, software, telecom, telecommunications, media and entertainment, Internet and e-commerce and other technology enabled companies. DSPML Opportunities Fund will allow the Investment Manager to be highly concentrated in any two or more sectors such as the Lifestyle sector, Pharmaceuticals, Cyclicals, Technology etc. The investment manager may at any given point of time have a zero weightage in any or more of the sectors.

The philosophy adopted by the Asset management Companies (AMCs) is a sign of things to come in the mutual fund industry. Both the funds are largely sector specific and are careful to not spread their portfolios very wide. Both funds have therefore very focussed approach. This approach is largely as a result of growing realisation among stock market investment managers and analysts that investors globally are favouring high growth sectors like the services industry.

A look at DSP's definition of Information Technology (IT) gives an insight into the investment objectives of both the fund managers and investors of the future.

As per DSP "Information Technology is not an enabling service, but an integral part of the business, and a strategic necessity."

The realisation that the traditional brick and mortar manufacturing companies are out of favour has led the mutual fund industry to evolve their investment strategies that whet the appetite of high growth and hence high risk-return seeking investors. Both DSPML Technology.com Fund and DSPML Opportunities Fund seem to be products of this line of thinking.

It should also be noted that sector specific funds mean lesser risk and hence lesser responsibility for the mutual funds. By coming out with sector specific funds, mutual funds leave the onus of choosing the most preferred sector to the investor, whose decision is a function of the current or what he perceives as the future craze in the markets.

However, this line of thinking has its own levels of risks. Prominent among these are:

  1. Since the schemes are sector specific and look at proactive stock switching (meaning changing the investment portfolio in line with emerging trends), making stock liquidity necessary.
  2. Reaction time is low in sector specific funds and needs active fund management approach. This is especially true for the Opportunity fund.

However, the increased frenzy of sector specific funds does not mean the end of the traditional balanced funds. In fact as time goes by and the mutual funds market matures investors are likely to understand the risks involved in sector specific funds and hence look for less riskier alternatives.

In words of Alok Vajpeyi, chief operating officer, DSPML Asset Management "the investors are likely to favour a balanced fund and have a savings philosophy rather than punting".

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