Review — Birla Sun Life India Reforms Fund

   India’s economic reforms have always helped boost growth in respective sectors. The Green Revolution that started in the 50’s and 60’s in India is one such example of how the overall economy and the companies related to the sector benefited from the reforms rolled out at different points of time.

The support provided to the Information Technology sector in the 90s is another example of growth and how it triggered off a tremendous domino effect which is responsible for the stellar growth of many companies related to this sector. The positive cycle of reforms has not only helped the economy prosper but has improved the lifestyle of individuals within our society. Today another golden opportunity is knocking at your door with a new set of reforms on the anvil.

The Fund manager intends to closely follow various reforms and policy initiatives planned by the government from time to time and invests your money in companies that are likely to gain from such reforms.

 

 

 

Scheme Objective : The investment objective is to generate growth and capital appreciation by building a portfolio of companies that are expected to benefit from the economic reforms, PSU divestment and increased government spending in sectors such as Telecom, Power, Education, Roads, Railways, Healthcare etc.

Nature of the Scheme : Open Ended

Asset Allocation :

Equities and Equity related instruments* – 65-100%

Debt securities and Money Market Instruments(Including securitized debt) – 0-35%

*The scheme may also invest upto 35% of its net assets in ADRs/GDRs issued by Indian companies, which in the judgment of the Asset Management Company are eligible for investment as part of the scheme’s portfolio and is consistent with the investment strategy, subject to a limit based on net assets of the Mutual Fund in accordance with the SEBI guidelines issued from time to time

Investment Strategy :

This scheme seeks to generate income by predominantly investing in equity and equity linked instruments.

Reforms in the context of the scheme refers to a set of economic and financial sector policy initiatives that lay down progressive framework for trade and investment for businesses in India. Such reforms could be in the form of liberalisation / deregulation, public sector disinvestments / privatisation, special government incentives/investment support to key thrust areas like infrastructure/power/education, employment generation, etc. The process of reforms in essence is directed towards achieving inclusive and long term growth of the nation.We believe that the process of reforms in India is slow but irreversible. As reforms unfold, they would offer significant business and investment opportunities for sustained period. The scheme would seek to invest in companies that are expected to benefit from the government reforms program. These companies would encompass, but not be limited to, engineering, real estate & construction, power, telecom, infrastructure, financial services, Fertilizers, agrochemicals, irrigation, education and select commodity sectors. Investments will be pursued in selected sectors based on the Investment team’s analysis of business cycles, regulatory reforms, competitive advantage etc. Selective stock picking will be done from these sectors. The fund manager in selecting scrips will focus on the fundamentals of the business, the industry structure, the quality of management, sensitivity to economic factors, the financial strength of the company and the key earnings drivers. The scheme will invest across sectors without any market cap or sectoral bias.The scheme shall also undertake Securities Lending and Borrowing within the framework as permitted by SEBI.

Fund Manager : Mr. Ankit Sancheti

Investment Plans / Options : Dividend and Growth Plan.

Dividend Plan shall have Payout and Reinvestment option.

Default Plan/Option – Dividend Reinvestment

Minimum Subscription Amount : Minimum of Rs. 5,000/- and in multiples of Re. 1/- thereafter

Minimum Additional Amount : Minimum of Rs. 1,000/- and in multiples of Re. 1/- thereafter

Entry Load* : Nil

Exit Load : For units Redeemed / Switched out within 1 year from the date of allotment, an exit load of 1% is payable and for units Redeemed / Switched out after 1 year from the date of allotment, no exit load is payable.

Benchmark : S&P CNX 500

Investor Risk Profile : Medium to High

Dividend Policy : The Scheme may declare dividends at the discretion of the Trustee, subject to the availability of distributable surplus.

SIP / STP : Available

IDFC Premier Equity Plan A:An outstanding outperformer

There’s no arguing with the numbers. In its history, IDFC Premier Equity Plan A has underperformed the category average in just two quarters (out of 14).

In 2007, it trounced the competition with a return of 110 per cent (category average: 64%). In the bear phase running from January 8, 2008 to March 9, 2009, it shed 54 per cent (category average: -64%). Its 3-year trailing returns of 30.45 per cent (July 31, 2009) places it streets ahead of the competition.

Hats off to fund manager Kenneth Andrade who boldly rides his bets. Little wonder that allocation to Services touched 44.74 per cent (May 2007) or FMCG accounted for 21.66 per cent (March 2009). Neither does he shirk from taking contrarian stands; his bias towards Services ever since inception and his restraint from going heavy on Energy, despite the sector gaining impressively, are cases in point.

In 2007 he did not jump into Metals. Ironically, the BSE Metal index delivered 121.47 per cent that year and yet the fund returned 46 per cent higher than the category average.

But Andrade is unsure if he should be branded a contrarian. “This fund attempts to capture shifts in the business environment with regard to new business opportunities, technologies and trends. We try to position ourselves ahead of the chain. It may or may not pay off but we must have sufficient reason to believe in what we are investing in,” he says.

With a focus on small companies, Andrade has an interest in keeping the fund size small. Hence it was shut for fresh investments during periods in 2006 and 2007. He maintains a tight portfolio spread across 26 stocks (1 year average) whose allocations don’t cross 7 per cent, barring Shree Renuka Sugars.

Ever since Andrade took over the fund in February 2007, he has maintained a high debt allocation which peaked at 25.53 per cent (June 2008) while cash holding was at 12.24 per cent (May 2008). Due to these high allocations he missed out on the latest rally to some extent with a return of 91 per cent, as against the category average of 104 per cent (March 9 – July 31, 2009). “The companies in this segment are not very liquid. We don’t want to be caught on the wrong foot, so have to ensure ample liquidity for redemptions, so that we do not disturb the entire portfolio,” he says. In a nutshell, a compelling pick.