After the successful launch of its Banking Sector Fund last year, the Reliance Mutual Fund has entered the power sector with the initial public offering (IPO) of its Diversified Power Sector Fund. As the name suggests, the open-ended fund will invest in equity and fixed income securities of power and other associated companies across various segments. For this purpose, the fund has segregated power sector companies into those operating in the following genres, broadly as: power generation, power transmission, power distribution, power trading, power financing, power equipment manufacturing and power technology. The fund proposes to keep its doors open for other emerging genres, which will evolve as the country's power sector scenario develops further.
As it is a pure sectoral play, the investment universe of the scheme is limited to companies operating in the power sector so the scope for diversification will be limited. The performance of this fund depends solely on the fortunes of the sector to which the fund is dedicated. In view of the recent announcements (introduction of Electricity Supply Act) being made towards reforming this sector, the future is largely dependent on the success of these reforms.
Interestingly, the fund manager has the liberty to invest upto 100 per cent in Equity or 100 per cent in Debt at any point of time depending on his view on anticipated movement in Equity and Debt markets. However, the allocation between Equity and Debt will be decided based upon the prevailing market conditions, macro-economic environment, performance of debt and equity markets and other considerations as the fund may find appropriate. By their very nature, sector funds are risky and so investors should consider this only as a kicker to the overall equity portfolio.