Call it a shadow of Reliance Industries! With a pre-dominant exposure to Reliance, JM Basic from JM Mutual Fund has moved in absolute tandem with the petro major. The first portfolio disclosure by the AMC, nearly four years after the fund was launched in May 1995, conclusively proves the fund's penchant for the stock.
The fund had 70.97% of its assets in Reliance Industries with a total equity exposure at 72.63 per cent on January 31, 2001! The remaining equity component of 1.66% is spread across as many as seven stocks. With the fund declaring two dividends between December 2000 and January 2001, it had over 27% of the corpus in money market instruments.
For a sample of the fund's near perfect correlation with Reliance, consider this. Since launch in May 1997, the first petro fund has generated an annualised return of 31.95 per cent. During the same period, the Reliance stock has gained nearly 31 per cent! Both the fund's net asset value and Reliance Industries hit their low for this period on October 20, 1998. While the stock touched its bottom at Rs 101.9 on the Bombay Stock Exchange, the NAV sunk to Rs 8.14.
While JM Basic has been a one-stock fund, its affinity for Reliance has surely reaped rich rewards. During the fund's tenure, all petro heavyweights barring IBP have suffered sharp erosion on bourses. For instance, HPCL has lost 5% between May 1997 and February 2001 while IOC shed over 15% during the same period. Another PSU Petro, IPCL declined by 11.3%. The only gainer has been IBP, which has even beaten Reliance with a return of 36%.
Initially launched as a 15-year closed-end fund, JM Basic went open-end last year. Based on the last available unit capital, the fund has a current size of Rs 895 crore, which makes it one of the largest equity funds in the industry. However, with a minimum investment of Rs one lakh, the fund is surely out of bounds for the retail investor.
While it has been smooth sail for the fund so far, the overexposure (a euphemism!) to Reliance surely defeats the objective of a mutual fund and makes it a highly risky investment. God forbid, if Reliance happens to skid, the fund may just find its gains evaporate overnight. Thus, if the scheme has to maintain its splendid performance, either Reliance should continue to shine or the fund broad bases its portfolio. Of the two, the latter is surely a better option!