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Funds for All Seasons

Large- and mid-cap equity funds are truly suited for all market conditions, allowing investors to invest & relax

Nowadays, it is hard to read about any investment product without wanting to sing out, “No ullu banaoing”, like the people in the Idea mobile ads. A few days ago, a most unusual mutual fund made its debut. This was the Goldman Sachs CPSE ETF, where CPSE stands for Central Public Sector Enterprises. I personally prefer to call these companies PSUs (Public Sector Undertaking) because frankly, enterprise is the last thing that one can associate with them. The fund is unusual because it's underlying goal is not about investors, but to help the central government divest its stake in PSUs.

ETFs are generally based on an equity index and replicate that index in their portfolio so that investors can invest in it easily. This fund's underlying index is a new index of the same name that the NSE has specially created for this fund. The index has ten PSU stocks as its components. An investor who wants to invest in a basket of public sector stocks can buy this ETF instead of the actual stocks. To ensure the NFO's success, Goldman Sachs and the government had sweetened the deal in an innovative way. During the NFO, there was a five per cent discount from a 'reference price' of these stocks. On top of that, there's a promised loyalty bonus whereby investors who stay invested for one year from the NFO will get a bonus one unit for every 15 units held. Given all these factors, buying the ETF during the NFO was not a bad tactical move. However, that's as far as it went.

Now that the ETF is listed, and the markets have run up a bit, and the special sweeteners are not there, it doesn't make sense to invest in this fund. The real reason is that buying an ETF like this goes against a lot of the very fundamental principles of investing. It might look like a good flavour of the day, but like all flavours of the day, when you try to digest the morsel, it turns that it wasn't such a delicacy after all.

It's generally never a good idea for fund investors to buy a sectoral or a thematic fund. However, even if one accepts the logic of a particular theme, it has to be an investing-related theme, like banks or IT or consumer goods or auto or something else that looks like doing better than the rest of the market. The CPSE ETF is not like that. Instead, it's a thematic fund where the theme happens to be the promoter. And not a promoter like the government of India who is known for not looking after the interest of the business or the minority shareholders.

If you want an equity fund that is suited for all seasons and where you can just invest and relax, then you should turn to large and mid-cap equity funds. They'll do much more for your money than the CPSE ETF ever could.