This week let us take a break from the standard fund update and look at the new offerings from Sundaram Mutual's stable. Why? That's because these offerings (two equity funds and a bond fund) are not plain-vanilla funds. While Sundaram Select Focus, a concentrated equity fund will hold about 15 stocks, Sundaram Select Mid-cap has earmarked 75% allocation to mid-cap stocks. As for its bond offering, Sundaram Income Plus, this fund will focus on below AAA bonds.
The three funds are open for initial subscription between June 24 and July 19, 2002. And they will re-open for regular sale and purchase from July 31, 2002. Minimum investment in each fund is fixed at Rs 5,000. Also, these funds will carry no-load during the initial offer period. However, on an on-going-basis, Sundaram Select Focus and Mid-cap Fund carry a 2% entry load whereas Sundaram Income Plus has a 1.5% exit load in case of redemption within 6 months. Now, let me tell you little more about these funds.
Sundaram Select Focus: This concentrated equity fund will hold about 15 stocks (minimum 10, maximum 20). It claims that the fund will provide managers 10 to 20 best ideas; distilling the investment universe in this way, which will give a manager a better chance of beating the indices than by pursuing a more diversified strategy. Concentrated funds are inherently riskier than average, so big ups and downs are the rule rather than the exception. So, expect above-average volatility. In my opinion, such a fund should not occupy a core position in your overall fund portfolio. Moreover, the fund manager is little known for his big stock ideas. But then a concentrated fund can reward you with outsized returns.
Sundaram Select Mid-cap: This fund's motto is to invest 75% of its portfolio in mid-cap stocks. It could be useful for investors looking to put a little punch into a large company-oriented portfolio but you ought to be wary of the volatility and liquidity problems associated with small-cap investing. So far, mid-caps have outpaced large-caps in this year's topsy-turvy market. However, mid-caps tend to be more volatile and could lose value more sharply than large-caps in a sliding market.
Sundaram Income Plus: This fund has a clear mandate -- invest in AA and below-investment grade bonds to earn higher yield. But, as you are aware, such bonds carry higher credit risk and face liquidity problems too. The added risk (or reward) with lower- rated bond is the changed view on the credit. These bonds could sink or surge following a rating change. Over the long run, high-yield funds can offer investors a possibility of stock-like gains, but with great risk.
Proceed with caution: The funds by design look interesting and could play a useful role in many portfolios. But I suggest that investors carefully consider whether they will be able to sleep at night with their money parked in these volatile funds. Moreover, the fund manager talent in managing focused portfolio is yet to be tested. So, consider your risk tolerance and be sure that an investment here is allotted to be the more aggressive portion of your portfolio.