VR Logo

Picking Up Steam

Consistency has been the hallmark of Sundaram Mutual funds' performance. In the recent past, this AMC has been hitting the headlines and it seems that it won't rest on its past laurels. Read more to find out why.

Guess who has been hitting the headlines lately? Well, it's Sundaram Mutual Fund. The reasons aren't difficult to find. In the past six months, this fund house has launched a number of new schemes. That apart, Sundaram Mutual's total assets under management have crossed Rs 1,000 crore for the first time in over six years since its inception.

Whenever you think of Sundaram, chances are that you think of stability. That's understandable. The AMC's flagship scheme, Sundaram Growth, has delivered steady returns in the past three years despite a volatile equity market. Its bond fund, Sundaram Bond Saver, has shown a strong performance in years when bond markets were not exactly on fire. During 1998 and 1999, the fund was among the toppers of its category. Not surprising since this fund house has a clear-cut goal: help investors realise their financial goals by delivering consistent performance through sensible investment practices.

Background
Sundaram Mutual was set up in August 1996 as a 61:39 joint venture between Sundaram Finance and Stewart Newton Holdings (Mauritius) - a subsidiary of the UK-based Newton Investment Management. Following the take over of its partner, Newton, by the US-based Mellon Financial Corporation in 2001, some doubts were raised about whether the objectives of the new partner would be in line with that of Sundaram's. Finally, in February 2002, the two partners decided to go their separate ways, with Sundaram Finance buying out Newton's entire stake in the AMC. Unperturbed by this development, Managing Director T. P. Raman says, "given that the brand projected in all communication was 'Sundaram', there is little impact that arises as a result of the parting of ways." So, will Sundaram seek a fresh alliance? We are open to the idea, says Raman, provided the prospective partner had a definite value proposition to offer.

Performance
The AMC's flagship scheme, Sundaram Growth, may have rarely ever topped the charts but it has consistently delivered steady returns. The scheme's 5-year return of 11.78 per cent against the benchmark BSE 200 Index's 1.8 per cent return, as on November 29, 2002, proves its mettle. The key to its success: diversification. The fund's exposure to a particular stock has never crossed 8 per cent. Its strong bias for large-caps and low exposure to momentum players prevented the fund from getting hurt during the tech crash of 2000. Despite the fact that the scheme's technology holding touched a high 38 per cent in February 2000, Sundaram Growth took a lesser hit.

Its income fund, Sundaram Bond Saver, has an appealing record of limited losses with respectable returns, registering a 3-year return of 14.55 per cent vis-a-vis peers' 13.82 per cent return as on November 29, 2002. Unlike other funds, this scheme doesn't take the fast lane to boost returns; instead it has mostly stuck to high-quality bonds. It has also avoided taking big interest rate bets. But in October this year, the fund's average maturity touched 6.47 years for the first time. Thus, when the bank rate was cut by 25 basis points in the credit policy, Sundaram Bond gained 2.4 per cent in November against the category's 1.7 per cent return.

As for its balanced fund offering, Sundaram Balanced, which was launched just after the technology meltdown, has largely followed a disciplined strategy and never gone overboard on any sector. For short-term investors, Sundaram Mutual - apart from the select short-term debt offering - has a cash fund, Sundaram Money, in its kitty.

Investment Approach
Sundaram's resilience in a tough market is no fluke. Equity fund manager Anand Radhakrishnan pays close attention to valuation and avoids drastic portfolio changes. This approach moderates volatility and limits the risks of high-priced stocks and outsized sector bets impacting the portfolio. The AMC follows a policy of not taking over 5 per cent in a particular stock. These steps have positioned Sundaram Growth as a moderate risk-return fund.Debt fund manager R. Sivakumar appears to be playing safe. The fund believes that the important risks of investing in debt arise from interest rate forecasts and asset allocation decisions and not necessarily from company performances

Products: More On Offer
After being a dormant player till 2001, the AMC has launched eight funds this year - two equity funds (Select Focus and Select Midcap) and six debt funds (Income Plus and a series of five select debt funds). Also, the fund introduced a close-end Fixed Maturity Plan (FMP). However, since the maturity of the first plan in September 2002, the fund has not launched more FMPs. The key point to note here is that each product has been positioned differently. For instance, Sundaram Select Focus is an aggressive equity fund, which will maintain a concentrated portfolio, comprising nearly 15 stocks. Sundaram Midcap is the fund's first venture into the realm of sectoral funds. Both funds received a good response from the market as they garnered Rs 21 crore and 18.15 crore, respectively, in their initial offer.

This sectoral theme is repeated on the debt side too. Sundaram Income Plus is a high-yielding bond fund, investing primarily in AA and below-rated corporate bonds. This is the first such scheme in the country. Sundaram Select Debt, on the other hand, was launched bundled with five options ranging from short-term, long-term to a dynamic asset plan. At present only a couple of players like Standard Chartered and Prudential ICICI have a product similar to this.

With these product varieties, Sundaram Mutual can now offer its investors a wider basket of offerings. However, it is yet to launch an index fund and a short-term gilt fund.

One thing, which sets Sundaram apart from many fund houses, is its intense communication with investors. Through its study, SKORe - Sundaram's keys to optimum returns, it has in a clear and simple manner shown that longer holding-periods result in greater safety of returns. Sundaram has also entered into personalised marketing efforts. For instance, in March 2001, it carried out direct marketing to passengers on the Chennai-Mysore Shatabdi Express. Further, in a move to tap the potentially lucrative segment of employees opting for voluntary retirement scheme, Sundaram had also organised seminars in five major cities.

The Way Ahead
The recent expansion signals that the Sundaram isn't willing to rest on past laurels. While much of the AMC was built on Sundaram Bond Saver and Sundaram Growth, the fund house has expanded its business beyond its bread-and-butter funds. Though the recent launches serve narrow segments of the market, each has found a suitable audience. On the whole, we see a wide range of products catering to just about every need.

Sundaram is still a small AMC when compared to larger private sector AMCs, it is a disciplined fund house. All told, Sundaram is slowly turning out to be a smart choice for investors seeking a single venture for all of their mutual fund investments.