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A Steady Start

Deutsche mutual fund has made an even start both in terms of funds' performance and asset growth. The AMC has the much-needed impetus to give a smart fight to many established peers.

In a short span of over a year-and-half, Deutsche mutual fund has made its presence felt in the Indian fund industry in a strong way. The AMC's assets under management has grown to Rs 2,391 crore - currently ranked seventeenth in the industry. Its funds too have put up strong showing in these short periods. The one-year return of all the four initially launched funds rank among the top one-third funds in their respective categories. And, in fact, its core bond fund—Deutsche Premier Bond has gathered more attention due to its 6.96 per cent in the one-year ending May 31, 2004, which ranks among the toppers in the category.

Background
Deutsche Mutual Fund entered Indian fund industry in January 2003 by launching four funds at a go - Deutsche Alpha Equity, Deutsche Premier Bond, Deutsche Short Maturity and Deutsche Insta Cash Plus fund. Now, the AMC has eight types of products to attract investors.

Deutsche Mutual Fund in India is sponsored by Deutsche Asset Management (Asia) Limited, which is a 100 per cent subsidiary of Deutsche Bank A.G. (Europe's second largest bank by assets). The Deutsche Bank has been operating in India for the past 24 years. With nearly US $725 billion in assets under management globally (as on March 31, 2004), Deutsche Asset Management (DeAM) is one of the world's leading investment management organisations.

DeAM has been operating under the global name of 'Deutsche Asset Management' since 1999. In December 2001, DeAM acquired the US, European (excluding Threadneedle) and Asian operations of Scudder from Zurich Financial Services, which significantly strengthened its worldwide presence. Scudder Investments is the US retail brand for DeAM. Those apart, DeAM has a strong network in Singapore, Australia, Japan, Hong Kong and Korea with a joint venture in Taiwan.

Performance
The AMC has launched all its eight funds over three installments. After starting-off with four funds in January 2003, it launched Floating Rate and Dynamic Bond funds in October 2003 and another two - MIP and Investment Opportunity funds in January 2004.

The AMC's flagship equity fund, Deutsche Alpha Equity has had a good run so far. In last year's bull-run (22/05/2003-14/01/2004), it delivered category beating 140 per cent return and in the subsequent volatile months, the fund's loss has been less then the average peer's. It has achieved this by maintaining a widely diversified portfolio spread over 35-40 stocks, mainly large-caps. Though the fund has invested in every sector, it has always maintained a higher allocation to auto stocks (average 16 per cent exposure). The top auto picks include Maruti Udyog and Tata Motors, whose share prices have tripled in the past one-year. Fund's top holdings like SBI, Reliance Industries, Grasim has also helped in enhancing fund's performance.

Deutsche Premier Bond has gained more attention than any other fund of the AMC. Reason: the fund's one-year return of 6.96 per cent is ranked No. 2 fund in the category, as on May 31, 2004. However, this fund is among the aggressive bond funds around as its average maturity has always been on the higher side in the category (6.12-7.78 years). Thus, it gained the most in the mid-year rally of 2003 (31/03/2003-17/10/2003) -- up 11.65 per cent vis-à-vis category average return of 8 per cent. But has been unable to protect return during volatile months of Nov '03, Jan '04 and Feb '04 as it fell more than the average peers did. Another point of concern here is its high expense ratio. This fund is currently managed by Suresh Soni (Head-Fixed Income), who has a good experience of managing debt funds at Franklin Templeton and Sundaram. The biggest fund of the AMC, Deutsche Insta Cash Plus is also among the aggressive cash funds but has done good job of protecting returns in good as well volatile times. Below average expense ratio of 0.65 per cent further ensures that the fund's returns would largely be better than the category average.

The other debt funds, Deutsche Short Maturity, Deutsche Floating Rate and Deutsche Dynamic Bond funds have also been doing fine in their respective categories.

New Products
In January 2004, DeAM launched an MIP and an Investment Opportunity fund. The MIP has two plans, each have separate risk-return profile in terms of exposure to equities. Under Plan A, the maximum equity allocation is 20 per cent of the total assets, whereas its 10 per cent under Plan B.

The Deutsche Investment Opportunity Fund is a dynamic equity fund that has the freedom to remain fully invested (100 per cent equity) or move to a situation where the equity exposure is as low as 5 per cent. As such, asset allocation is in the hands of the fund manager rather than the investor. The fund's sector allocation is restricted to +/- 7 per cent of its benchmark–BSE 200. To this extent the fund would remain diversified and the 'opportunity' for the fund manager will be more in switching between debt and equity.

The Way Ahead
It's too early to draw any firm conclusion as Deutsche funds have largely seen good times. The real litmus test lies ahead when both equity and debt markets would turn volatile, as has been the case in past few months. The AMC would also need to enlarge its product range to become a single destination for all sorts of investments. Currently, the AMC is lacking balanced, gilt, sector and index funds in its portfolio.

Moreover, witnessing a sober take-off, Deutsche Mutual Fund has got much more potential to give a smart fight to many established peers.

Strategy Note

SANDEEP DASGUPTA
Chief Executive Officer
Deutsche Asset Management

Investment Style
Deutsche Asset Management follows a disciplined approach to investing both in Equity and Debt markets. We use the CFROI (Cash Flow Return on Investments) principle to construct the portfolio on Equity funds relying on our global sector and country research platform.

The goal of Fixed Income investment team is to deliver consistent, reasonable returns by actively managing a diversified portfolio of high quality securities. The fund avoids taking aggressive position either on interest rate risks or credit risk. The firm believes in a disciplined and risk controlled investment process which aims to deliver the client superior risk adjusted returns.

Exploits International Expertise
The equity team in India is fully integrated with the sector specialists around the globe apart from having access to the global research platform of Deutsche Asset Management. The Investment team participates in all the important conference calls and weekly discussions on Asian and Global markets with Regional analysts and Fund Managers.

New Product Offerings
We propose to offer a suite of mutual fund products in the next 12 months. We are already working on developing a few products that may be unique in the Indian markets and will satisfy the needs of customers. Apart from this we are keen to launch a few structured products and offer advisory services to large institutional clients. We are in the process of obtaining necessary regulatory approvals from local regulators.

Going Ahead
Five years down the line, we see ourselves emerging as one of the strongest Asset Managers offering both local and offshore products to the Indian investor. We are confident that in the next 5 years the regulations will change to enable us to offer global investment solutions to investors in the country. As a part of one of the largest global asset managers in the world, we wish to bring our investment management expertise to offer solutions and products to a large base of customer segments.