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Slow And Steady

DSP Merrill Lynch MF has been chugging along for the past eight years, and has a few funds that are doing well. With a group of talented managers and modest expenses on debt funds, we think the AMC generally keeps investors' best interest at heart

DSP Merrill Lynch Mutual Fund has completed eight years in the Indian mutual fund industry and is currently ranked among the top-10 fund houses in the country in terms of assets under management (AUM). As on November 30, 2004, the AMC managed Rs 6241.31 crore of assets. Despite this, the fund house has largely remained in the sidelines due to the average performance of its core equity and bond fund. The AMC's good performing funds lie outside the core fund universe.

On the equity side, DSPML Opportunities -- an opportunist and dynamic equity fund -- has done well registering a three-year annualised return of 50 per cent, which ranks it among the top quartile funds in the category. On the debt side, DSPML Floating Rate and DSPML Liquidity have had a good run with each fund managing top-quartile returns across time periods. But the AMC's core equity and debt funds, DSPML Equity and DSPML Bond haven't pleased most. In fact, both these funds have been the AMC's flagship schemes, but have only managed to deliver category average returns. The fund house has also been slow in terms of product expansion. After launching DSPML TIGER and two hybrid funds in May 2004, the AMC hasn't come up with any new products.

The Sponsor
DSP Merrill Lynch Fund Managers is the investment manager to DSP Merrill Lynch Mutual Fund and is a subsidiary of DSP Merrill Lynch (DSPML). DSPML is a leading investment bank in the country with presence in primary markets, secondary markets, corporate finance, etc. Having a global reach through the Merrill Lynch network, DSPML Mutual Fund has been able to leverage the parent's expertise, and bring some of the global best practices to India.

DSPML Equity Fund has recently been repositioned as a value fund, hence its portfolio has slightly shifted towards mid-caps after being a large-cap fund for long. Despite this change in investment strategy, the fund is still as good as an average equity fund. As value funds are expected to do well over the long-term, it's too early to comment.

On the other hand, the AMC's two relatively new equity funds, DSPML Top 100 Equity and DSPML TIGER have also not been able to deliver good returns largely due to their large-cap focus. While the former invests in stocks of 100 largest corporates by market cap, the latter focuses on those company stocks that could benefit from ongoing structural changes and economic reforms in the country. So far, mid-caps have done better than the large-caps in 2003-04, and both funds have had it tough. DSPML Technology.com too has scouted for large-caps, hence resulting in average performance of the fund. Though DSPML Opportunities has also maintained a large-cap portfolio, this fund with its concentrated sector bets has managed to beat its peers quite comfortably.

Among hybrid funds, DSPML Savings Plus Moderate Plan is leading the performance chart in the past year largely due to its higher equity allocation, which can go up to 20 per cent of net assets. The DSPML Balanced Fund has also performed superbly this year - it is among the top-three funds in the category. It has achieved this by maintaining a good blend of large- and mid-cap stocks together with a good debt portfolio dominated by floating rate securities.

The volatility in the debt market has ruined all bond funds and DSPML Bond is no exception. Though this fund, with is rather aggressive maturity calls, has been among the biggest gainers in 2001 and 2002 when interest rates were falling, it has not been able to keep its pace once markets turned hostile this year. With one month to go in 2004, DSPML Bond is down 1.73 per cent as against category average loss of 0.32 per cent.

DSPML Floating Rate Fund has been a high-flier since its launch in May 2003. Till now, it has managed to outperform the category average in 16 of the 17 months. Even across different reference periods, it has always remained in the top half of the category. Interestingly, DSPML Mutual Fund considers its short-term and cash funds to be institutional plans as the primary target for these are always institutions whether they are branded as such or not. While DSPML Liquidity has been able to outsmart the category in terms of performance, DSPML Short-term has failed to match the category's performance.

The Way Ahead
Slowly but steadily, DSPML Mutual Fund is coming of age. With a group of talented, experienced managers and modest expenses on debt funds, we think the AMC generally keeps investors' best interest at heart. But the fund managers will have to improve the performance of core funds as these products define the AMC's character and help in building better brand value. With regard to other categories of funds, DSPML Mutual Fund is doing fine. The AMC lacks a tax-planing fund, a mid-cap fund and other sectoral funds so as to call itself a full-fledged fund house offering all kind of products under the same roof.