MFs lay out chic options for high-end clients

Najaf Ishrati MUMBAI

Apr 12, 2006

AFTER resorting to repackaging the existing schemes as new products, the domestic MF industry is entering into a phase where it is looking to offer completely new and innovative products for the sophisticated investor. Industry watchers say that there are many products waiting in the wings, held back either by the lack of demand or by regulatory hurdles. “That the industry has been able to launch advanced products like exchange traded funds and fund of funds reflects on the level of innovation and ability to cater to specific investment needs,” says Sukumar Rajah, CIO, Franklin Templeton Investments. “However, we might see demand developing for sophisticated investment products such as absolute return funds, tactical asset allocation across various asset classes and currencies amongst the institutional segment,” he adds.
A few products waiting in the wings include UTI MF’s Retirement Benefit Unit Plan (RBUP). This pension plan will tie up with organisations to collect small amounts from employees and invest into the fund. “The speciality of such an offer is that employees in the non tax-paying, lower income brackets will have a product with an exposure to equity with the potential to give better returns than EPFO or PPF,” says UK Sinha, CMD, UTI AMC.
Industry observers say that there could be more development in the multi-manager format. Optimix, an arm of ING, is looking to launch the ‘manage the manager fund’. This fund would either give the money or the mandate, to managers from other funds with a speciality in their sector.
Sumeet Vaid, CMO, Optimix adds that another product which the industry could see, is the ‘capital guarantee’ product, in which a fixed percentage of the funds invested will carry some sort of insurance or underwriting. Obviously, a part of the allocation will go towards the payment of insurance premium. Another category of MFs neglected by the industry are geographic funds. Sources say that if demand rises, we could have a mandate to invest in companies from a particular state or region.
Sources say that what is missing from the picture is a benchmark fund which will try to capture the gains of the upside, while protecting the initial Rs 10. Regulations permitting, a fund which could invest in say, a 2-year sensex call option, could find ample demand, as part of the allocation will go to the derivative premium and the remaining into debt. The benefit of any rise in the index will be available to the investor.
Another scheme missing from scene is the ‘dynamic asset class’, with which the fund will invest in gold, commodities and real estate, apart from equity. Fund managers say that if they are allowed to reinvest in, say an HDFC real estate fund, they could offer their investors the chance to gain from an appreciation in land prices, which they can’t obtain directly due to high entry requirements.
Two types of funds launched recently which could see a spurt in demand are special situations funds and funds investing in foreign equity. Launched by Fidelity and Franklin Templeton respectively, these will be closely watched by the industry. Fidelity says that special situations arise out of the ordinary situations that companies find themselves in from time to time. These situations present an investment opportunity to those who can foresee and interpret the implications of that opportunity early enough. As obvious, research requirements will be high for such funds, and not all AMC’s will have the capacity to launch it.
Fund managers are looking to regulators like Sebi, RBI and the government to clear their roadblocks.