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Highly Disciplined

Sustaining good performance for long is not an easy task. Sundaram MF has done exceptionally well here in majority of its funds. Though the AMC is still not so big, it is expected to give a stiff competition to its peers.

This AMC has a basket full of products with at least one good fund in each of the fund categories. Be it diversified equity, hybrid, income or liquid, Sundaram has its key funds - Sundaram Growth, Sundaram Balanced, Sundaram Bondsaver and Sundaram Money - to take on the competition. These funds have consistently delivered good returns with low volatility over the long-term. Encouragingly, most Sundaram funds have always boasted either 3-star or 4-star rating (Value Research Monthly Fund Rating) in their respective categories. Not only that, the AMC also believes in exploring new products. Consider the successful launch of Sundaram India Leadership fund that garnered over Rs 100 crore in its IPO. Earlier, it had launched a variety of products under its Select Series.

The AMC's flagship scheme Sundaram Growth's performance is unmatched. In the past four calendar years, the fund's return has always been among top half funds in the category. Same is true of Sundaram Balanced (launched in 2000). However, Sundaram Bondsaver has seen lots of ups and downs in its six-and-a-half-year stint. Interestingly, the AMC's short-term funds are one of the least costly funds. The expense ratio of Sundaram Money (0.54) and Sundaram Select Short-term (0.64) is on the lower side in the category, thus distributing most of the gains back to the investors.

The sponsor of the Sundaram mutual fund is Sundaram Finance, one of India's leading financial services companies with an asset base of over Rs 2,500 crore. The AMC was set up in August 1996 as a 61:39 joint venture between Sundaram Finance and Stewart Newton Holdings (Mauritius), a subsidiary of the UK-based Newton Investment Management. In 2001, Newton was taken over by the US-based Mellon Financial Corporation. Following this, there were some doubts on whether the objectives of the new partner would be in line with those of Sundaram's. Hence, in February 2002, Sundaram Finance bought Newton's entire stake.

On the equity side, the fund has separate funds to cater different set of investors. If one considers Sundaram Growth's stability and diversity, his search for good equity fund may end here. The fund's weight in any stock is confined to 5 per cent. Hence, this disciplined large-cap fund won't rise much in a bull market but won't let you down in the bearish market. For example, in the not so favourable market of 2004, Sundaram Growth is just down 3.8 per cent beating three-fourth funds in the category. Even its 1- and 3-year return rank among the top quartile funds in the category.

The other two equity funds namely, Sundaram Select Midcap and Sundaram Select Focus are also amongst the least sufferers in the category this year. The Sundaram Select Focus takes concentrated bet on the 15-20 large-cap stocks, while the Sundaram Select Midcap invests only in stocks with market cap between Rs 60 and Rs 1,600 crore. Sundaram Taxsaver also has a category beating performance track record. Its portfolio comprises a mix of large- as well as mid-cap stocks.

Sundaram Balanced had a good run so far - all its calendar year returns rank among the top half funds in the category. In the past three months, however, its equity exposure has come down to 50 per cent form 60 per cent and has been more tilted towards mid- and small-cap stocks. Still, it is one of the least volatile funds.

On the debt side, its core bond fund - Sundaram Bond Saver's performance has slightly taken a back seat. The fund is down 1.35 per cent as against the category average of 0.28 per cent. Reasons: its relatively higher allocation to gilts and successive higher maturity. But, historically, the fund has beaten majority of its peers in each of the calendar years. One major cause of concern here is its expense ratio (1.75), which is on the higher side in the category. But the AMC also has the institutional plan under Sundaram Bond Saver whose expense ratio is less than 1 per cent.

The AMC's short-term funds are way ahead in terms of the expense ratio. Sundaram Select Debt -Short-term and Sundaram Money have one of the least expense ratios in the respective categories. And their performances are also strong - both funds' have generated category-beating returns in most of the funds of their existence. Sundaram Gilt, the short-term gilt fund, has managed recent volatility with ease - it's up 2.26 per cent as on July 30, 2004.

New Launches
Recently, the AMC has launched Sundaram India Leadership fund, which is a large-cap fund with a twist. It targets top two to three companies (in terms of net revenue or total income) in each sector. In December 2003, the AMC launched Sundaram MIP, whose equity allocation can go up to 20 per cent. However, the equity market tanked soon, forcing the fund to keep equity exposure below 10 per cent. Due to this cautious stand, Sundaram MIP's 6-month return of 0.81 per cent is better than the category average return of 0.41 per cent. The AMC is also planning to launch Sundaram Star fund. This will be a value fund and would look for opportunity arising of the stocks moving from small-cap to mid-cap and mid-cap to large-cap.

The Way Ahead
So far, this disciplined fund house's journey of nearly eight years is encouraging. Most of its funds are on the top, especially diversified equity, short-term and cash funds. The fund house has consistently tried out something or the other, where it's the launch of new products or reaching out to new places. In the past one year, the AMC opened new branches at Ahmedabad, Chandigarh, Jaipur and Kanpur, taking total to 17 branches. Though the AMC is still not so big, it is expected to give a stiff competition to its peers.

Strategy Note
T. P. Raman
CEO, Sundaram Mutual Fund

Investment Strategy
Sundaram's equity products normally use a combination of top-down and bottom-up approaches in portfolio construction. Care is taken to adhere to internal fund norms in portfolio construction. On the debt side, we take two broad views. The first one, the interest rate view is dictated by our understanding of the level of industrial activity, the current state of the economy and the liquidity in the market. The interest rate view, in turn, dictates the duration view i.e. what should the overall debt portfolio's exposure to interest rate volatility be?

On Mergers & Acquisitions
We believe in organic growth; given the current prices, at which assets are taken over in 'consolidation' cases, it may not be a viable option at the moment. Moreover, we believe that the industry has tremendous scope for growth and will certainly reward patient players. We are willing to stick it out over the long haul. At the same time, we are open to joint ventures which would provide us the necessary skill sets in order to offer a wider range of products or enable us to leverage off distribution or marketing strengths, or help us penetrate new (global) markets.

Product Expansion
Currently, the industry is pre-occupied with asset classes, and products are offered based on themes, within an asset class rather than investor needs. Once we have expanded our product base to cover all key themes within asset classes, we would be looking to offer products that are suited to specific investor needs, as is the trend in the more developed markets.

Five Years Down the Line
At Sundaram Mutual we have always believed in the values of prudent investing that helps our investors' "real" wealth grow. In the next five years we see ourselves among the top ten mutual funds in the country.