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MUTUAL FUNDS NEWS

NFO: The Mutual Fund Industry has new designs for you.

Thu, Jan 28, 2016

Source : Jeni Shukla, Citrus Interactive

Currently close ended New Fund Offers (NFOs) offered by 3 Mutual fund companies are open for subscription. A closed end fund is a mutual fund scheme where the investment is locked in for a specified period of time. Investors can subscribe to these schemes only during the offer period and can redeem their units only after the lock in period. The advantage is that the fund AUM is stable and the fund manager can take a long term view without worrying about redemption pressures.

Long tenure Close ended ELSS: SBI Long Term Advantage Fund – Series III, UTI Long Term Advantage Fund – Series III and Sundaram Long Term Tax Advantage Fund – Series II

Close ended ELSS funds seem to be the new flavour of the NFO season. This implies that the investor gets tax benefits under Section 80C by investing in these schemes.

Sundaram, UTI and ICICI Prudential AMCs have launched 10-year close ended ELSS funds – SBI Long Term Advantage Fund – Series III, UTI Long Term Advantage Fund – Series III and Sundaram Long Term Tax Advantage Fund – Series II. The lock-in period is for 3 years after which units can be redeemed. As evident from the names – for SBI and UTI this is their third such fund in the Series while it’s the second in the series for Sundaram. The funds are open for subscription till March 2016.

There are many similarities between the 3 schemes. A minimum of 80% of the corpus will be invested in equity and equity related instruments. The funds will follow a combination of top-down and bottom-up approach to stock selection. There is no bias to a particular market capitalisation – hence the funds can invest in large cap, mid cap as well as small cap stocks. The funds are multi-cap and diversified in nature.

Since most of the features of the funds are similar we can take a look at the returns generated of their respective close ended ELSS Series launched prior to the current NFOs to compare the performance of the fund managers (since the fund managers are the same for the latest Series). UTI Long Term Advantage Fund is benchmarked against S&P BSE 100 while the other two are benchmarked to S&P BSE 500.

In terms of performance record of the previous schemes in the Series - SBI Long Term Advantage – II has performed the best in the last 6 months, the second best being UTI Long Term Advantage – Series II. Sundaram LT Tax Advantage – I has not even beaten the benchmark and is the worst performing with significant underperformance.

	6 Months	1 Year
SBI Long Term Advantage Fund – Series I	-13.23	NA
SBI Long Term Advantage Fund – Series II	-12.11	NA
UTI Long Term Advantage Fund – I	-13.27	-9.38
UTI Long Term Advantage Fund – II	-13.17	-9.34
Sundaram LT Tax Adv Fund-Series I	-23.18	NA
S&P BSE 100	-14.62	-13.39
S&P BSE 500	-13.95	-11.76

Figures in % as on 18th January, 2016

ICICI Prudential Business Cycle Fund – Series 3:

This latest offering from the stable of ICICI Prudential will dynamically allocate between various sectors and stocks at different stages of business cycles in the economy. A business cycle is basically defined in terms of periods of expansion and contraction. The fund manager will consider economic parameters (like Current Account Deficit, fiscal deficit, interest rates, inflation), investment indicators (like investment in capex, new projects cleared, etc.), business and consumer sentiment (purchasing manager index, business confidence index, sales of various consumer discretionary products, etc.) to decide on the expansion or contraction phase. The fund will be managed by S. Naren and Mittul Kalawadia.

Performance of funds in the previous series (Series 1 is managed by Mrinal Singh and Series 2 by Manish Gunwani)

	3 Months	1 Month	Since Inception	S&P BSE 500 Since Inception
ICICI Prudential Business Cycle Fund – Series I	-10.85	-9.04	-10.4	-10.04
ICICI Prudential Business Cycle Fund – Series II	NA	NA	-7.88	-7.54
S&P BSE 500	-10.56	-6.53

Figures in % as on 18th January, 2016

Both the funds have underperformed the benchmark in the period since their inception.

Sundaram Value Fund Series – III

As the name suggests the fund will follow a value investment strategy. It will invest in stocks which may be available at more favorable valuations when compared with peer group or stocks that are currently not in favour but are fundamentally strong. The fund will try to capture emerging stocks through its study of industry and management. It will follow a bottom-up approach in constructing the portfolio. The fund will be market cap-agnostic.

The fund house believes that stocks will benefit from the economic recovery in sight – and India’s strong macroeconomic momentum. The fund will be managed by S Krishnakumar, Madanagopal Ramu (Co-Fund Manager-Equity) & Dwijendra Srivastava (Fixed Income).

The following table summarizes the performance of the previous series (which have also been managed by S. Krishnakumar). Sundaram Value Fund-II has fared better than Series-I and has managed to beat the benchmark.

	3 Months	6 Months	1 Year	Since Inception	S&P BSE 500 Since Inception
Sundaram Value Fund-I	-14.24	-19.55	-12.09	-8.21	-8.94
Sundaram Value Fund-II	-6.66	-10.63	NA	-1.4	-12.55
S&P BSE 500	-10.56	-13.95	-11.76

Figures in % as on 18th January, 2016; Since Inception returns in CAGR terms

Summary of NFOs:

	Sundaram Long Term Tax Advantage Fund – Series II	UTI Long Term Advantage Fund – Series III	SBI Long Term Advantage Fund – Series III	ICICI Prudential Business Cycle Fund – Series 3	Sundaram Value Fund Series – III
NFO Open Date	3-Nov-15	18-Dec-15	31-Dec-15	8-Jan-16	18-Jan-16
NFO Close Date	15-Mar-16	22-Mar-16	30-Mar-16	22-Jan-16	1-Feb-16
Scheme Type	10-year close ended ELSS (3 years lock in)	10-year close ended ELSS (3 years lock in)	10-year close ended ELSS (3 years lock in)	3-year close ended equity scheme	5-year close ended equity scheme
Fund Manager(s)	S Krishnakumar & Dwijendra Srivastava (Fixed Income)	Lalit Nambiar	Dharmendra Grover	S. Naren & Mittul Kalawadia	S Krishnakumar, Madanagopal Ramu (Co-Fund Manager-Equity) & Dwijendra Srivastava (Fixed Income)
Benchmark	S&P BSE 500	S&P BSE 100	S&P BSE 500	S&P BSE 500	S&P BSE 500
Other schemes managed by the fund manager	Sundaram Select Midcap, Sundaram S.M.I.L.E., Sundaram Select Smallcap Series, Sundaram Value Fund – Series I. As co-Fund Manager: Sundaram Select Micro cap Series, Sundaram Tax Saver, Sundaram Value Fund- Series II, Sundaram Hybrid Fund (Series M & N)	UTI-Banking Sector Fund (co-FM); UTI-Equity Tax Savings Plan; UTI-Focussed Equity Fund Series I & II (co-FM); UTI-Gold ETF; UTI-India Lifestyle Fund; UTI-Long Term Advantage Fund – Series I & II; UTI-Multi Cap Fund; UTI-Pharma & Healthcare Fund; UTI-Wealth Builder Fund – Series II	SBI Tax Advantage (Series I, II, III); Equity portion of SBI Capital Protection Fund Series II, SBI Equity Opportunities Series I & II; SBI Dual Advantage (Series I to XII) and SBI Long Term Advantage Series I & II	Jointly by both: ICICI Pru Dynamic Plan, ICICI Pru Top 100, ICICI Pru Value Fund Series 1	Sundaram Select Midcap, Sundaram S.M.I.L.E., Sundaram Select Smallcap Series, Sundaram Value Fund – Series I. As co-Fund Manager: Sundaram Select Micro cap Series, Sundaram Tax Saver, Sundaram Value Fund- Series II, Sundaram Hybrid Fund (Series M & N)

Our View:

The recent performances of the NFOs has been quite mixed and uninspiring. You will also have to accept the fact that the markets have also not been very supportive. However, some of the funds have not managed to beat their benchmarks and this will not be missed by the more discerning investors. There was a wave of launch of a series of close ended equity funds in 2013 and 2014 and the subsequent rally in the market brought positive returns to investors. This became a self fulfilling cycle that encouraged more money to pour into subsequent equity NFOs. It will be interesting to see if the trend will continue in a declining market.

While the ELSS funds offer no differentiation - SBI Long Term Advantage Fund and UTI Long Term Advantage Fund seem to be a good choice going by the superior performance of the same fund managers in the previous series. ICICI Prudential Business Cycles can be a good multi cap bet considering it will strive to ride business cycles through a dynamic strategy and it will be managed by S. Naren as the lead fund manager.

NEW FUND OFFERS

CLOSED END FUND

ELSS

SBI LONG TERM ADVANTAGE FUND

UTI LONG TERM ADVANTAGE FUND

ICICI PRUDENTIAL BUSINESS CYCLES

JENI SHUKLA

CITRUS INTERACTIVE

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