The Birla IT Fund has gone through a change and expanded its field. Being an investor in Birla IT, is the new focus good for me as an investor?
J. Dave
Imagine a shopkeeper who usually stored products of a single brand only. His sales were determined by the demand for this brand—if customers bought the products, his sales would increase and if the demand dwindled, the shopkeeper would lose sales. Once he decides to store all the brands, he finds that both sales and customers keep on increasing at a constant pace.
Now replace the shopkeeper with Birla IT—the erstwhile technology-dedicated fund, which now has the flexibility to invest in various sectors including IT. Like the shopkeeper's sales, the fund's fortunes will not be tied to a single sector and will depend on its investments in other sectors too. The fund doesn't categorically state out the sectors where it will invest.
However, the new investment objective seems to include the pharmaceutical sector, a variety of manufacturing industries and technology dependent industries like business process outsourcing (BPO). Birla India Opportunities will thus be a more diversified fund. Therefore one could expect that the variability or fluctuations in Birla India Opportunities (new name for Birla IT) fund would be much less compared to those in its previous avatar. Hence one can safely assume that the risk level should come down as and when the fund actually diversifies.
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Keeping in mind the basic tenet of investing—higher the risk higher the returns and lower the risk lower the returns, the return equation of Birla India Opportunities may come down. It may not always be possible that all the sectors do well at one point of time. For instance, prior to the new mandate, the fund invested 83 per cent of its assets in technology and the rest in services sector. Now the fund has diversified into pharma, chemicals and auto sector as well, though it still keeps a substantial proportion of assets in the technology sector.
Though in times of a broad-based bull run like the one witnessed over the past few months, Birla India Opportunities fund may deliver superior performance. After all, as a technology fund, it was the best performing fund among its peers.
Now if you have been an investor in Birla India Opportunities Fund since its heydays, a change in its investment mandate does call for a review. How much proportion of your total investments was invested in this fund? If it was not more than 20-25 per cent of your investments, then you need not worry. The fund in its new form can still have a supplementary role in your portfolio.
But if you are a die-hard believer in technology, then this fund may prove to be disappointing as its mandate is diluted.
The bottomline is Birla India Opportunities now dons a diversified image, and as a result, its positioning has changed from a high risk-high return to low-risk low return proposition.
This article was originally published on December 15, 2003.
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