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Dearth of Good Ideas?

Despite being the best performing mutual funds category, investors have not gone overboard with IT funds

This article appeared in the November 15 - December 14, 2009 Edition of Mutual Fund Insight

The best performing mutual fund category this year (as on November 13, 2009) has been IT. With a return of 96.32 per cent, IT funds are way ahead of the Sensex’s return (73%) and the category average of equity diversified funds (74%).

Yet, most interestingly, investors have not gone overboard with these funds, like they did last year where gilt and gold funds were concerned.

The combined total assets of the five IT funds combined are just Rs 411 crore, a paltry amount compared to the assets of any average equity diversified fund. Though assets have grown by 56 per cent since the start of the year, compared to manner in which the IT category and IT index have rebounded, this is hardly a vote of confidence.

A peek at the portfolios of these funds show hardly any significant differentiating factor amongst them. All have bought heavily into Infosys and Tata Consultancy Services. The combined portfolios of all the five funds show that these two stocks together account for more than 51 per cent of the portfolio. But if one looks at individual portfolios, the maximum allocation could be far higher, 78.13 per cent in the case of Franklin Infotech.

Since it appears that there are only two IT stocks in India that are worth buying, it would make sense for investors to directly buy these stocks rather a fund where you pay an expense fee to help the fund manager  buy them.