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Cashing In On Commodity

Compared to equity, commodities are a very different kind of game. Commodities are deeply cyclical, some more so than others. Currently, it appears that most commodities are near the top of a long bull run. In conjunction with the impending global slowdown, this cycle does not paint a cheerful picture of the immediate future.

Investment Strategy
Broadly, the fund’s mandate gives it the liberty to invest fully in foreign equity while the exposure to Indian equity would be limited to 35 per cent. The fund may also invest up to 35 per cent in overseas equity mutual funds. Moreover, its wide mandate allows the fund to invest up to 20 per cent of its assets in debt or money market instruments.

The fund will have three plans which would maintain their separate portfolios with segregated investment objective. The Global Precious Metal Plan will invest mostly in gold and related precious metals companies. That may also include finance companies that invest in precious metals. The Global Agri Plan would invest in companies that have exposure to agricultural commodities. While Global Multi Commodity Plan will be a more diverse and invest in energy, precious metal, Energy, precious metals, industrial metals, water and agricultural commodities.

Fund Manager’s Performance
This fund has two designated fund managers -- Vineet Maloo and Ankit Sancheti. Vineet Maloo will be responsible for the investment in foreign equities. He is a chartered accountant with four years of experience with Hindalco Industries and Aditya Birla Management Corp. Currently he manages two separate plans of Birla Sun Life International Equity Fund and two Equity Linked FMP. Ankit Sancheti will be responsible for domestic allocation of the fund. He is a C.F.A. and C.A. with eight years experience in equity research and fund management.

Similar Funds
This is the third commodity fund to invest in overseas commodity companies or funds after Mirae Asset Global Commodities Fund (July 2008) and ING Optimix Global Commodity Fund (Aug 2008). Both are relatively new funds, it is not possible to comment on their performance as of now, though the other variant Magnum Comma Fund which invests in domestic commodity companies had posted an impressive return of 86 per cent in 2007. It has lost nearly 36 per cent in 2008 (till August).

AMC Performance
Birla Sun Life Mutual Fund is the fifth largest fund house in terms of its assets under management (as on August 2008). In 2008, the fund house has launched a stream of debt funds, equity-linked FMPs and fixed term funds. Birla Sun Life Pure Value is the only equity fund it has launched in 2008.

Market Insight and Opinion
With prices of commodities sky-rocketing on the back of surging demand and intense speculative interest, companies associated with commodities have been the centre of attraction for all kinds of speculators. Everybody wants to make money in commodities, be it retail investors or institutions. Hence, in the past few months, we have seen a spate of commodity-oriented funds being launched, which intend to exploit this opportunity by providing retail investors a way to invest in commodities.

However, it is important to note that commodity prices are cyclical and move up and down from time to time. The recent fall in gold and oil prices is a good example of the uncertainty in commodity prices. Thus, investors interested in investing in such funds should keep in mind the risks associated with them.

Scheme Details
NFO Opens: September 15, 2008
NFO Closes: October 14, 2008
Type: Open-end equity scheme
Plans: Global Precious Metal Plan, Global Agri Plan and Global Multi Commodity Plan with Retail and Institutional Plans
Options: Growth, Dividend (Payout and Reinvestment), Sweep
Benchmark: Global Precious Metal Plan- Dow Jones Precious Metals Index
Global Agri Plan- S&P Global Agribusiness Index
Global Multi Commodity Plan- MSCI World Index
Fund Managers: Mr. Vineet Maloo & Mr. Ankit Sancheti
Minimum Investment
Retail Plan- Rs 5000
Institutional Plan- Rs 5 Crore
Load Structure:
Entry Load – 2.5%, For less than Rs 3 crore, 1 per cent, For equal to Rs.3 crore and less than Rs.5 crore.
Exit Load – 1%, For redemption of less than Rs 5 crore, within one year of the date of allotment of scheme.