Reliance Capital AMC has been in the news in the past year and a half. The stupendous performance of its equity schemes, Reliance Growth and Reliance Vision has been behind this. The fund has also ventured into the sectoral space by launching India's first and only banking sector equity fund. Besides this, the AMC is also expanding its product portfolio on the debt side.
Background
Reliance Capital Mutual Fund started its journey in 1995 with just two equity funds. The fund is sponsored by Reliance Capital. Reliance Capital has been promoted by Reliance Industries Ltd, one of India's largest private sector enterprises. Till 2001 this mutual fund had only five funds to offer. However, in 2003 Reliance Capital Mutual Fund has launched four schemes. With Rs 4319.89 crore of assets under management as on July 31, 2003, Reliance Capital AMC is the eighth largest mutual fund in the country.
Performance
Reliance Capital Mutual has had a decent record in its equity funds Reliance Vision and Reliance Growth. Reliance Vision and Reliance Growth have posted a return since launch of 18.29 per cent and 20.57 per cent as on July 28, 2003. Reliance Vision returned 74.58 per cent in 2002 and was the top-performing fund in its category. This performance was achieved by investing heavily in mid-cap stocks. The fund also rapidly churned its portfolio in and out of these stocks. However, with large-caps making a comeback in 2003, the fund has taken a sizeable exposure to large-cap companies. Overall, the fund largely focuses on spotting companies that offer good value. In the absence of such companies, the fund manager does not hesitate to sit on cash.
Reliance Vision and Reliance Growth have posted a year-to-date return of 40.34 per cent and 43.86 per cent respectively, compared to 25.1 per cent for the category (as on August 6, 2003). Both these funds also have lower volatility (standard deviation) compared to the average for the category.
Reliance Mutual Fund forayed into the debt category with the launch of Reliance Income Fund in 1997—two years after its incorporation. Reliance Income Fund has been an average performer. It has provided decent returns, in line with the category and is among the low volatile funds in the category. This fund's primary focus was on corporate bonds earlier and it maintained a cautious approach towards government securities. Since October 2002 the fund has increased exposure to government securities. In the volatile month of March 2003, the fund lost 0.95 per cent against the category losing 0.31 per cent. With 46 per cent of Reliance Income Fund's assets in gilts as on April 31, 2003, this was likely to happen. The fund has half its portfolio into gilts as on June 30, 2003.
Products and Strategies
Reliance Capital Mutual launched two schemes—Reliance Vision and Reliance Growth in October 1995. Till 1997 these were the only two fund offerings from Reliance. Both of these were India's first zero-initial-cost schemes, as there was no load charged. Reliance Growth Fund, unlike Reliance Vision, was launched as a seven-year closed-end scheme and was converted into an open-end fund in September 1999, much before the completion of its term. It continued the no-load structure even after being converted to an open-ended scheme. Both these funds, however, now charge a load of 0.5 per cent to 2 per cent, depending on the amount of investment.
Reliance Growth is predominantly a large-cap fund, which tilts towards mid-caps on occasions. Reliance Vision, on the other hand, is predominantly a mid-cap fund, which does not hesitate to look at large-caps from time to time. But this distinction has not always been clear and the AMC also does not clearly label these funds as such. In fact, this distinction has emerged in early 2002, when the AMC changed the benchmark of these funds from the large-cap Sensex to the more blended BSE 100.
Reliance Mutual's foray into sector funds came with the launch of Reliance Banking Fund in May 2003. Learning lessons from the fall of technology sector funds in recent years, the fund manger has kept a mandate for investment upto 100 per cent in debt instruments of banks if the need arises. This will allow the fund manager to safeguard returns if bank stocks become volatile or tumble. The fund managed to collect Rs 50 crore during its IPO. However, Reliance Banking Fund has faced a steady exodus of investors and the assets under management have fallen to Rs 31.87 crore as on July 31, 2003.
Reliance Capital Mutual Fund also planned to launch a technology fund in 2000 and an offer document was also filed with SEBI. But the plan was aborted and Reliance Banking is the only sector fund in Reliance Mutual Fund's stable.
In the recent past, Reliance Capital Mutual has looked towards launching debt products as well. This is evident from its recent launches. In December 2002 the fund house launched a short-term debt fund. This short-term offering has the second lowest expense ratio in the category of 0.65 per cent. The fund house also launched short and long-term gilt funds last month. Further, Reliance MIP, which was a pure debt offering (unlike other MIPs that have marginal equity investment) was converted into Reliance Medium Term Fund.
Reliance Capital's tardiness on the debt side was reflected in its continuing with historic pricing in Reliance Income for a long time after most funds had given up this practice. Under historic pricing an investor would get the previous day's NAV. This practice was stopped only recently. In spite of the fact that Reliance has had a longer history in equity funds, it has not managed to expand on its investor base in equities. Only in the past year have both equity schemes attracted substantial inflows.
The Road Ahead
Reliance Capital has proved its worth with equity offerings such as Reliance Vision, but it has been a late entrant in the debt category, and is yet to foray into the hybrid fund category. The asset management company is also missing out on a tax-saving equity fund. But having launched four funds this year, this fund house seems to be catching on. Reliance is one of the best known brand names in the country today. The sponsors of the AMC have not, however, capitalised on this and the mutual fund business does not seem to be a high priority. Nonetheless, the AMC has grown in the past year and is filling its product basket to serve the needs of all types of investors.
This article was originally published on October 17, 2003.
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