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Funds for a Changed Weather

With the markets going through a rough patch, AMCs are looking to lure investors with innovative products

If possible, be the first. If not, create a category in which you can." That's exactly the mantra Asset Management Companies (AMCs) are chanting these days. Investors who have seen the stock market collapse like a pack of cards, are probably of the opinion that investing now is like picking pennies in front of a steamroller. In a badly bruised market, wherein investors are on life support, AMCs are going out of their way to make people believe that life does exist beyond. And nothing is stopping them from launching a slew of products in this changed market climate.

Conventional wisdom or the zeitgeist doesn't warrant an equity fund, as the situation is turning from bad, to worse to gruesome. So there has been a rush for commodity-based funds. Mirae Asset Global Commodity Stock Fund, ING Optimix Global Commodities Fund and the AIG World Gold fund were the ones launched this year, after equities turned sour. But this is just the beginning. If one were to look at the offer documents filed with the Securities and Exchange Board of India (SEBI), there are a lot many intending to reap the benefits of the commodity bull run and a number of exchange traded funds (ETFs) waiting to make their presence justified.

Moving beyond the domestic frontier are international or global funds preaching geographical diversification. Apart from the above-mentioned commodity funds, which also guarantee diversification by investing across countries, there are funds that will also invest in equities across a geographical belt, like the ING Latin America Equity Fund and HSBC Emerging Markets, which are already open. Besides, there are filed offer documents for Franklin India MENA (Middle-East and North African) Fund and Kotak Emerging Economies Fund. The objective is of 'capital appreciation' and the investment destination varies from Emerging Markets to Middle-East and Africa to even Latin America and others. So if the situation has turned sour back home, why not shop for stocks abroad?

If you think the above lacked innovation, consider Benchmark AMC's Shariah Benchmark Exchange Traded Fund, based on specially structured Islamic Law. If the idea clicks, others will surely follow the suit.

Then there are equity linked Fixed Maturity Plans. And of course, the JP Morgan India Alpha Fund. The 'alpha' strategy used here involves taking positions with minimal market risk by buying one stock (or its derivative) and selling another (or its derivative). This usually means identifying some trend that is benefiting one company and at the same time is detrimental to another. Let's take the example of the increase in the price of steel. The fund manager would then take a long position in Tata Steel and go short on Tata Motors (for the same amount) which may be hurt because of the price rise. Owing to market sentiment, if Tata Steel goes up by 10 per cent and Tata Motor goes down by 5 per cent, the fund manager will be able to generate 15 per cent returns.

Investors chase performance and it is easy for a fund company to capitalise on that. Tata AMC had an Infrastructure Fund which was its star fund. They launched two infrastructure funds with little variation in a span of six months - Tata Indo Global Infrastructure (October 2007) and Tata Growing Economies Infrastructure Plan (March 2008). At least seven pure infrastructure dedicated funds were launched in the second half of 2007. But chances are that you won't be seeing one in a while. Neither would you see the launch of a plain vanilla diversified fund.