Escorts Asset Management is expanding its fund family with the launch of three open ended schemes viz. Escorts Growth Plan, Escorts Balanced Fund & Escorts Gilt Plan. The initial offer for all three open-ended plans will remain open for subscription from February 19, 2001 to March 20, 2001.
Escorts Growth Plan
The fund aims at providing long term capital appreciation with a diversified equity portfolio. While at least 80% of the corpus would be invested in equity instruments, the scheme can also invest up to 20% in bonds. With its predominant allocation to equity instruments, investment in the fund are likely to fall in the high-risk bracket. Investors can participate in the scheme with a minimum investment of Rs 5000.
Escorts Balanced Fund
The fund aims at providing a single investment option with a mix of fixed income and equity instruments. While investments in equity instruments will range between 55-80%, exposure to the placid debt markets could go up to 40% of the corpus. With this asset allocation, the fund is likely to hold a medium risk complexion. The scheme has a minimum subscription at Rs 1000.
Escorts Gilt Plan
The scheme aims at providing income and capital appreciation by investing in government securities or gilts. Thus, the fund would behave like a sectoral fund in the bond markets. While these instruments offer high credit quality, they are susceptible to interest rate fluctuations. Hence while a gilt fund is more sober than its equity counterpart, with in the broad category of debt funds it is likely to be more volatile. The initial investment in to the fund is set at Rs 5000.
Besides the growth option, investors in all the three schemes have a choice to receive dividend or reinvest the same.
The expenses incurred during the initial offer and subsequent annual expenses (recurring) are charged to the investors as Initial issue expenses and Annual Recurring Expenses respectively. The AMC has targeted the initial issue expenses at 5% of the IPO amount for the equity plan. This implies that for every Rs 5000 invested during initial offer, Rs 4750 is likely to be apportioned for investments. While the actual expenses could be lower, the estimated initial cost compares unfavorably with initial expenses of recently launched schemes, many of which charged as low as 2%. For a sample of Escort's past record, consider Escorts Tax Plan, which was launched last year. The fund incurred an expense of 6.78% against the targeted 5%, which was entirely paid for by the AMC without any charge to the investor.
The initial issue expenses for gilt plan will be borne by the AMC while expenses up to 2% in the balanced fund will be charged to investors.
The AMC track record
Escorts Mutual fund kicked off its operations in 1996 and currently manages a small kitty of Rs 55 crore, a large part of which is in the debt schemes. Launched in 1996, Escorts Income Bond is a closed-ended debt oriented plan with marginal equity exposure and has returned 7.66% since launch. Escorts Income Plan and the recently launched Escorts Tax plan are open-ended schemes. Launched in 1998, Escorts Income Plan has posted an annualised return of 12.79% on the back of small sized debt oriented portfolio. On the other hand, Escorts Tax Plan was launched in the volatile markets of 2000. The fund is in the positive territory with a return of 3.34% since launch in March 2000.
In all the three categories, investors today have multiple options to choose from AMCs, with a long-standing track record. For instance, there are 43 open -ended diversified equity funds, which have at least a 3-year track record. Add to it, the portfolio holdings of and investment pattern for most of these funds is known. The 43 funds, comprising the Value Research category of diversified equity schemes, have on an average posted a return of 25.26% over the three-year period.
With the AMC embarking on a relatively new territory, the Escorts series will first have to back itself with a credible track record and stable returns. With leading players offering the similar products with a healthy track record, investors would do well to avoid the issue.