IS THIS MUTUAL FUND WORTH INVESTING?
A SHORT ANALYSIS
January 4, 2010
In the world of equity mutual funds, there are a variety of schemes, ranging from plain vanilla and well-diversified funds, opportunity/flexi funds, fund of funds, large-cap/mid-cap/small-cap funds, tax-saving funds, balanced funds, theme-based funds and sectoral funds.
One such sectoral fund with a big asset size is RELIANCE DIVERSIFIED POWER FUND from the stable of Reliance Mutual Fund, India's biggest mutual fund managed by a worthy fund manager, Sunil B.Singhania. Its asset size is Rs 5,830 crore as on Nov. 30, 2009; one of the highest in the Indian mutual fund industry.
LET US ANALYSE THE PERFORMANCE OF THE FUND and FIND OUT WHETHER IT IS WORTH INVESTING AT THIS POINT OF TIME:-
SOME CAVEATS:
1. Sectoral funds, like this Power Sector fund, are riskier compared to well-diversified/plain vanilla equity funds
2. Such sectoral funds are suitable for sophisticated and nimble-footed investors with rich experience in the stock market
3. Investors shall have time horizon of three to five years while investing in such narrow-based funds
4. Investors should do their due diligence and asset allocation before taking any investment decision and consult their certified financial planner for all their investment decisions according to their financial plan. Ensure that the total of thematic/sectoral does not exceed 5 to 10 per cent of your overall portfolio.
5. Investors need to study the product in its entirety and take into account the market risks involved in selecting a mutual fund
PAST PERFORMANCE:
Reliance Diversified Power Sector fund has given the following returns:
FUND % CATEGORY % NIFTY %
One-year 93.58 61.27 71.46
Two-year - 2.00 - 6.05 - 8.00
Three-year 29.17 7.45 9.45
Five-year 44.07 21.41 20.11
NB: 2-year to 5-year are CAGR %
YEAR-WISE RETURN IN %:
FUND % NIFTY %
2005 81.37 36.34
2006 58.78 39.83
2007 124.42 54.77
2008 - 50.39 - 51.79
2009 78.59 75.00
Even though the past performance may not be a guide to the future, this particular fund has not only beaten the category returns, but also the Nifty index also. The fund has comfortably outperformed the category returns and Nifty.
Even during the calendar years from 2005 to 2009, this fund has given superior returns compared to Nifty return
On the past performance score, the fund is worth considering for long-term investment
GENERAL FEATURES:
This is an open-ended fund
Minimum Investment is Rs 5,000
There is no entry load
There is an exit load of one per cent if redeemed within one year from the date of purchase
SIP (systematic investment plan) is available
In addition to Retail plan, Institutional plan is also available
Growth and Dividend options are available (if you're looking for long-term investment of three to five years, it'd be better to consider to opt for growth option)
Even Non-Resident Indians (NRIs) can also invest in this scheme. The amount is also repatriable.
The scheme was launched in May 2004
NAV of the growth option is Rs 78.59 as on 31.12.2009
NAV of the dividend option is Rs 48.87 as on 31.12.09
The net asset size is Rs 5,830 crore as on 30.11.09
PORTFOLIO FEATURES:
A large-cap oriented fund with a large cap exposure of 59 per cent
Mid cap exposure is 37 per cent, and
Small cap exposure is 4 per cent
The fund's exposure to stocks is about 85 per cent, while 15 per cent of the total net assets are kept in cash. The fund maintained unusually high cash levels of up to 40 per cent during the height of bull run in January 2008 till the end of bear run in March 2009. By holding on to huge cash hoard, the fund was able to weather the bear market of 2008.
TOP FIVE sectoral holding is as follows
% of holding
Energy 28
Engineering 17
Financials 8
Metals 7
Diversified 6
TOP TEN STOCKS:
% of holding
Torrent Power 7.00
Jindal Steel & Power 5.30
ICICI BANK 4.40
Reliance Infrastrucutre 4.30
Tata Power 4.10
Cummins India 3.80
JP Associates 3.80
ONGC 3.60
PTC India 3.00
Larsen & Toubro 2.70
Overall, the portfolio is well-balanced across not only power sector but others. There is not any over exposure to any particular stock. Interestingly, this power sector fund has got exposure to financials, like banks (ICICI Bk, SBI, etc) and metal stocks.
FUND MANAGER:
The fund is managed by Sunil B.Singhania since July 2004
He has got more than 10 years of experience in stock markets and mutual fund industry
He has got excellent academic credentials holding a CFA (US-based) and FCA
He maintains several other funds, including Reliance MF's flagship fund Reliance Growth, Reliance Banking, Reliance Infrastructure and Reliance Long-term Equity with a total corpus of Rs 17,700 crore. Schemes, like, Reliance Growth have got a good long-term track record.
To sum up, he is an accomplished fund manager from Reliance MF's stable.
SUITABILITY:
As sectoral fund entail higher risk, Reliance Diversified Power Sector fund is suitable to investors with high-risk appetite and with a long-term horizon of three to five years
This fund is suitable for market-savvy and veteran investors
Risk-averse investors can consider investments in well-diversified/plain vanilla schemes
MARKET OUTLOOK:
In this year 2010, Indian investors are starting on an optimistic note with benchmark indices, Sensex and Nifty trading at their 12-month high levels of 17,559 and 5,232 points respectively as at the end of Jan 4th, 2010. We had experienced torrid time in 2008 and a terrific and good year in 2009. As such, we need to approach the markets with a long-term outlook, tempering our expectations to a reasonable level of 15 to 20 per cent this calendar year. However, if Indian Government pursues economic reforms relentlessly and supports the Indian Inc with long-term policy measures, the Corporate India may post good to excellent results depending on the global markets and continuation of quantitative easing and monetary accommodation.
With regard to power sector, the consensus view seems to be veering toward a bit negative at this point of time due to the perceived failures in the primary market in the form of Adani Power, NHPC and other power company IPOs. Many marketmen are of the opinion that these issues, including the latest one, JSW Energy, were aggressively priced by the merchant bankers. This pessimistic view is likely to continue for a few months more.
However, India is a power-deficient nation and there is huge scope for reforms in the Power Sector. This provides excellent opportunities for power sector players despite the challenges in the form of project execution, land acquisition, power pricing, SEB reform, etc.
NET NET:
Overall, power sector may do well in the next three to five years. Of course, there will be volatility along the way, as is the intrinsic nature of the stock markets. Investors have to brace themselves for some shocks in their journey towards achieving their long-term goals. If they have patience and risk appetite, Reliance Diversified Power Sector fund is going to reward them handsomely at the end of three years. Investors are well advised to read the DISCLAIMER given below.
The fund is from the stable of Reliance MF, the biggest mutual fund in India with assets under management of more than Rs one lakh crore. It is managed by Sunil B. Singhania, a fund manager with rich experience of more than 10 years in mutual fund industry. He manages total assets of about Rs 17,700 crore from a total of five schemes.
It would be better if investors choose the path of investment through systematic investment plans (SIP). Lump sum investments may not suit most of the investor class.
Considering the above facts, investors are likely to get good returns from Reliance Diversified Power Sector Fund-Retail.
Date courtesy: Value Research and Reliance MF
DISCLAIMER: The views are personal. This analysis is made for information purpose only. The author has got a small stake in the above mutual fund. As such, it is safe to assume that he has got a vested interest in the fund going up or the general market going up. Investors shall consult their certified financial advisor before taking any investment decision, based on their overall asset allocation and financial plan.
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