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New Kids on the Block

The markets were barren till now, but new equity funds are blooming, giving investors a plethora of new choices.

The market may be the most brutal that almost anyone remembers, but fund houses are busy enticing investors with new equity funds. As many as 16 diversified equity funds have been launched this year till now, taking the grand total of funds to 81. This is an amazing number, the highest since the heyday of the IPO boom in 1994, when 18 diversified equity funds were launched and the year is not yet over! In any case, 1994 was an unusual year when the industry was actually born and many private sector players —Zurich, JM and Morgan Stanley among them — were launching their first offerings.

Fund managers are obviously betting on low valuations — after all, entering the markets at current levels is as close to being a rock-solid guarantee of good long-term performance as you can get from the stock markets. This is reflected in the striking range of products that are on offer.

Among the diversified equity funds that have been launched this year, there are seven index funds, five large-cap growth funds, two mid-cap funds, one PE Ratio Fund (from Franklin), and one Select Focus Fund (from Sundaram). This wide variety provides investors with a very broad range of choices to fine-tune their investing strategy.

The really encouraging thing is the amount that one of these funds — Alliance's Frontline Equity — has managed to mobilise Rs 110 crore. This is the highest initial mobilisation by any equity fund in the past two years. The last time a fund scored more at launch was when HDFC Growth Fund, raised Rs 135 crore in August 2000.

There are many innovations in the roster of new funds — Prudential-ICICI has launched a Dynamic Equity Fund, which is essentially an equity fund but may enter bonds if conditions warrant it. Sundaram's Select Focus Fund will only choose 10-20 'select' companies and invest in them. Zurich's India Leadership Fund will invest only in companies that are market leaders or have the potential to be one. There are also plain vanilla funds like the three — one each for equity, income and cash — being launched by new player HSBC.