Zurich India Asset Management Company is quietly making its way to the top. Without much fanfare, assets under its management have crossed Rs 4,000 crore in September. As a result, Zurich India is now the sixth largest fund house in India. As is normal nowadays, the larger shares of these assets are in its debt products.
However, there is really no need for Zurich's equity funds to maintain this low profile. Its flagship scheme Zurich India Equity is a winner across time periods and market cycles. Investors have also realised the funds worth. The funds corpus crossed the Rs 100 crore mark for the first time in March this year. The fund doubled its size in the next three months to reach Rs 230 crore by July end. So while it took the fund more than three years (since it was taken over from 20th Century Mutual Fund) to reach Rs 100 crore the next landmark of Rs 200 crore was crossed in just three months. The AMC's other five star fund, Zurich India Taxsaver, is also a winner in its own right. A five year compounded return of 37.57 per makes it the top fund in its category. In the three years ending October 31, 2002 it is ranked second in the tax saving schemes' category.Maintaining a diversified exposure has been the hallmark of Zurich's equity funds. Even during the technology madness of 2000 these schemes kept lower software exposure when compared to the peer group. Though this somewhat reduced returns during the bull market it kept them in good stead when the market crashed. The result of this is that Zurich India Equity is the top fund across the market cycle from October 20, 1998 to September 21, 2001. In this time period, when the Sensex has generated minus 5.93 per cent Zurich India Equity has delivered a breathtaking 89.17 per cent.
This arms' length distance from technology was also felt in a different way. Zurich AMC, unlike other fund houses did not launch any technology funds in 2000. According to S.V. Prasad, President Zurich India AMC, "We did not at that time feel that the market was mature enough to appreciate and understand sector funds.
These funds were being seen by a large part of the market as a means of generating super normal returns while not accounting for the associated risks with this type of a product. Secondly, our investment team was of the opinion that the IT sector was grossly overvalued at that time and in fact considerably reduced exposure to this sector even in our diversified equity funds and balanced fund as early as late 1999- early 2000."
Globally, the Zurich Financial Services Group is not passing through the best of times. It is divesting from non-core businesses and geographies and consolidating operations on its home-turf in Europe. Recently, it announced that it no longer intends to enter the insurance business in India, which it was expected to in partnership with Punjab National Bank and Vijaya Bank.While this has led to some worries about Zurich's funds, the issue is unlikely to impact investors in India. The AMC in India is a robust business that is profitable on a cash basis and in any case, a merger or acquisition involving it may just see the funds become part of some even larger and stronger AMC.
Does this fund house's performance in equity mean that it does not succumb to temptation? While Zurich AMC's equity funds have always remained diversified they have at times also tried to get in on the flavour of the season. In late 2001, when IT stocks made a sharp recovery, Zurich India Equity moved quickly in and out of IT stocks. Similarly, the fund had some months back moved 20 per cent of its portfolio into energy stocks. The derailment of the divestment process is something the fund may be ruing, at least in the short term.
But within all these ups and downs, the fund has tried to maintain product sanctity at all times. "A balanced fund should be balanced -- equity to debt ratio should be within the 60: 40 and 40:60 band. A diversified equity fund should be diversified at all times," says Prasad. So, Zurich India Capital Builder, while also an equity fund, is positioned at a lower end of the risk return scale. The fund does not make aggressive sector calls as compared to Zurich India Equity. Similarly, Zurich India Prudence, a balanced scheme, has largely managed to remain balanced across sectors as well as asset classes.
Amidst the changing ownership patterns, the AMC has effected significant changes in the way it managed funds. The foremost was the organisational structure. As opposed to an investment committee approach, funds are assigned to individual heads. Funds are managed in a structural way. An investment template is designed for each fund, which specifies an individual scheme's positioning. The dos and don'ts, investment universe, and minimum diversification norms are built into this. All stocks also have to be from a universe that forms a core list. After study and research, companies with strong businesses, capable of earning decent returns over their invested funds and available at attractive valuations, are chosen and tracked by the research team for this core list.
Following these guidelines, the fund managers take stock and sector calls. In all this the investment committee is still there, but its job is to review progress at regular intervals. The fund believes that this methodology enables it to keep a tab on the overall risk, while allowing individual funds' managers freedom to work independently. Currently, the two fund managers for equity and debt each report to Chief Investment Officer Prashant Jain, who also manages two of the five equity funds. Jain reports to Prasad, who heads the fund as president.
While Zurich's awareness among retail investors is largely because of its equity performance, the fund's debt schemes are no slouches either. These schemes have been the largest contributors to its size and have also performed well in their respective categories. By and large they have been conservative when it comes to managing credit risk and aggressive in interest rate risk management. Within debt funds, Zurich India High Interest and Zurich India Short Term have set a scorching pace of growth. Between the two of them, these schemes have added more than Rs 500 crore to the AMC's assets under management.
At the end, besides performance, what matters most is the quality of service rendered. In this domain the fund also has some firsts to its name. Zurich India was the first mutual fund to use the National Stock Exchange to distribute its schemes. The Zuricheque facility, a pre-issued un-dated repurchase cheque, facilitates faster repurchase by reducing the time lag between filing for repurchase and actually receiving the redemption.
With equity markets hopefully near the bottom, the stage is set for another joyride. Investors in Zurich AMC have had a rewarding time so far. This positive experience has driven up expectations. If the fund house repeats its performance of the last cycle it will have firmly established a place for itself in the Indian mutual fund market.
This article was originally published on January 08, 2003.
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