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Thematic Funds from UTI

There's a great deal of activity at UTI these days. After celebrating its first anniversary and acquiring schemes of IL&FS mutual fund, India's largest fund house has launched a series of thematic funds. The scheme comprise of six funds, each concentrating on a theme - Large Caps, Mid Caps, Basic Industries, the Auto Sector, the Banking Sector and PSUs.

The initial offer for the schemes is open from March 9 to March 25. The minimum investment under each fund is Rs 5,000, and as is normal, there is no load during the initial offer. All initial issue expenses will be borne by the AMC. After re-opening the schemes will charge an entry load of 2 per cent.

While the UTI Large Cap fund will invest in 20 companies within the universe of top 50 companies in terms of market capitalisation, the UTI Mid Cap fund will invest in stocks of those companies, which are not part of the Sensex or Nifty. This will be the fifth mid-cap fund in India after Franklin India Prima, Birla Mid-cap, Sundaram Select Mid-cap and Benchmark Junior BeES. The PSU fund will be the AMC's second fund with an interest in PSUs—UTI Master Growth has a mandate of investing up to 50 per cent in PSU stocks.

Among the three sector funds, the UTI Auto Sector fund will be the first of its kind in India, which will invest only in auto and auto ancillary companies. The UTI Banking Sector fund will be the second such fund after Reliance Banking fund that will invest in bank and financial services companies. The UTI Basic Industries fund's portfolio will consist predominantly of companies engaged in the sectors like metals, building material, oil and gas, power, chemicals, engineering, etc.

Sector funds have a very focused but limited investment universe, thus placing them on the highest risk-return profile in the mutual fund universe. And highest risk does not necessarily translate into highest returns. Sector funds can thus produce tremendous gains or losses, depending on whether your chosen sector is in or out of favour. Sector funds can, however, be useful in some circumstances. If your portfolio is lacking in a particular sector, these funds can fill the void. Either way, invest in these funds only if you think you understand the relevant sector dynamics well.