Mutual Funds and ULIPs have their own merits

“Its success lies in the fact that it is an insurance plan and not an investment or a welfare plan,” said James Franklin Roosevelt 


Sorry Mr Roosevelt, but insurers here would beg to differ. Thanks to an array of ‘insurance cum investment products’ , the idea of a complete insurance product for investors seems to have diluted. 

Yes, you have guessed it right. We are talking about Unit Linked Insurance Plans (ULIPs), which are currently the most popular of all insurance schemes available in the market. But why, as someone would rightly point out, is an ULIP being discussed in an Investor’s Guide edition purely dedicated to the Mutual Funds (MFs)? 

ULIPs and MFs, have locked horns against each other for quite some time now. The recent debate roots from scrapping of the entry load from the MF schemes, closely followed by Insurance Regulatory & Development Authority (IRDA) capping the ULIP charges. 

But why, after all, are MFs and ULIPs, up against each other? 

The answer, though simple is highly complex to deal with. And the answer lies in the manner in which the ULIPs are sold. Investors here are perceived to believe that they are buying an insurance plan with a built-in add-on feature of mutual fund investments. Thus prima facie this product seems an attractive ‘buy one get one free’ offer. But this perception goes for a toss when the investor realises that the element of insurance is just miniscule. And this revelation pops only after the scheme is bought. 

Most ULIPs available in the market today offer an insurance cover in the range of 5 -10 times the amount of annual premium. Thus, for an investor paying a premium of Rs 20,000 per annum, the embedded value of insurance is simply a lakh to two lakh rupees. In a stark contrast, a traditional pure term insurance plan can fetch an insurance cover of about Rs 50 lakh with the same amount of premium. 

Moreover, unlike a traditional endowment or money-back policy, ULIP does not pay back the amount of sum assured if the holder survives through the policy term. The amount receivable on maturity is purely the fund value whose growth is directly linked to the markets. There is thus a very thin line of distinction between an MF and a ULIP as far as the structure and investment strategies are concerned. 

Another concern surrounding the ULIP is the fact that if at the time of maturity of the policy, the markets are sailing in troubled waters, investors have no option but to accept the returns as determined by the market then. Unlike an MF, they do not have an option to hold on to their investment until the markets recover. 

Thus, though MFs and ULIPs are said to be similar, the similarity is restricted to the product structure and investment strategies. The point where this similarity ends, the dissimilarities begin. 

The starting point of this dissimilarity is the extent of charges levied by both these products. An ULIP is normally loaded with a number of charges ranging from premium allocation charge to fund management fees to policy administration charge, mortality charge, top-up premium charge, switchover charges and so on. Of these, the premium allocation charge, which usually varies from about 10% to 100%, is the prime source of income for insurance distributors and is highly criticized for robbing the investor of his invest-able surplus. 

On the other hand, the prime source of revenue in case of an MF is the fund 

management charge, which is currently capped at 2.5% per annum. 
There is also a 
small percentage of penal charge, ranging from 0.5% - 1% called as exit loads, levied in case of premature withdrawals. Premature withdrawals here generally refer to withdrawals within one year from the date of investment. The net amount invested is thus much higher in case of an MF vis-à-vis a ULIP. However, having said that, it would be wrong to conclude that ULIP is a bad product and that a MF scores over an ULIP at all times. 

ULIPs are known to be tax-friendly since both the investments and the returns are fully exempt from tax. Moreover, ULIPs offer flexibility to switch between the equity and the debt investments, which are currently absent in case of an MF. This switchover, though, attracts some cost. But then ULIP is beaten by an MF when it comes to liquidity, as an early exit from an ULIP is nothing less than suicidal. 

To prove this thesis, ETIG analysed two investment options – one in a ULIP and the other in an MF to analyse the returns from these two competing products over a period of time. And the results are interesting indeed. Under both the options we have assumed the age of the investor to be 30 years and annual amount of investment is Rs 20,000 for 20 years. Under the first investment option, we have assumed a ULIP scheme with a 100% exposure to equity markets. 

Assuming the risk cover to be five times the first premium installment, the sum assured is Rs 1 lakh. As far as charges are concerned, we have assumed a Premium allocation charge (PAC) of 20% for the first two years and 10% for the third year. Thereafter, PAC is uniform at 2% p.a. throughout the policy term. Policy administration charge is fixed at Rs 60 per month throughout the policy term while mortality charge is based on the age of the policyholder and the amount of risk cover. The same thus increases with the age of the policy holder during the policy term. 

Another charge factored in is the fund management fee, which is 1.5% p.a. and gets deducted from the fund value on a regular basis. Thus, in the first three years of the policy, almost 25% of annual premium is deducted towards these different charges. 

Under the second investment option, the premium paid towards a pure term insurance plan of Rs 1 lakh is mere Rs 417 per annum while investment in equity mutual fund will attract an annual fund management charge of about 2.5% of the fund value. (While we have assumed a pure term cover of Rs 1 lakh, investors would do well to note that a pure term plan with such small cover is currently not available in the market. We have assumed the same to make investments under both the options comparable).

Source: http://economictimes.indiatimes.com/Features/Investors-Guide/Mutual-Funds-and-ULIPs-have-their-own-merits/articleshow/4850357.cms?curpg=2

MFs to face greater obstacles with entry load gone

The mutual fund industry in India, although 15 years old, is still to develop into a 

credible competitor to other segments of the financial 
services industry, especially 
insurance. On the face of it, mutual fund investments (in equity schemes) seem more attractive than insurance products, but on the ground the reverse is true. More Indians trust life insurance companies with their savings than they do with mutual funds. According to figures from the Central Statistical Organisation (CSO), life insurance funds accounted for 12% of total household savings in India. In contrast equity & debentures only attracted 7% of household savings in financial year ending March 2008. 

There are 35 asset management companies (AMCs) in India managing Rs 6,70,012 crore, according to independent investment information provider, Value Research. The industry’s penetration is estimated at 4-5 % as against 10-15 % for insurance. There are around 3 million agents for insurance products and just 80,000 distributors for mutual funds. 

Both industries, which started almost half a century ago in India with a single player, now have several competing companies. Still, low customer awareness levels and poor financial literacy have largely stymied the popularity of financial products in India. 

But in the case of insurance, rampant misselling has made it more popular than mutual funds. While insurance is indeed an investment for covering your life, it is sold more as a tax-saving investment tool. In rural areas, agents mis-sell it as a fixed deposit and the idea has been so well rooted that in many Indian villages, it is still popularly known as ‘Lal FD’ . There is little scope for mis-selling in case of mutual funds - the mis-selling is limited to the extent that the agent assures investors a return that the fund may not able to deliver. 

In terms of selling, both mutual funds and insurance are ‘push’ products. However, a distributor has a higher incentive to sell the latter because of the opportunity to earn a higher commission. An agent selling insurance earns a commission of 30-40 % of the initial premium and a trail commission of around 5%. However, the commission in case of mutual funds is never more than 2-2 .5%. 

Insurance generally is a product that cannot be sold multiple times to one investor. Hence, the agent has to be given a high commission to push the product. In case of mutual funds, the agent gets multiple opportunities to sell more than one product to the same investor. 

As a result, distributors and mutual fund houses exhibit limited interest in continuously engaging with customers post closure of sale as the commissions and incentives are largely in the form of upfront fees from product sales. Limited use of the public sector banks’ network and post offices to distribute mutual funds has also impeded the growth of the industry. The insurance industry, on the other hand, has been able to leverage this to its advantage.

While setting up an AMC is relatively easy, getting business during a downturn and 

withstanding redemption pressures during times of low 
liquidity is the difficult part. 
The insurance business is one with a long gestation period and requiring sufficient capital to cover incremental actuarial liability. The breakeven time for an insurance business in India is at least seven years. In this scenario, the most important challenge for the company is to have a robust agency network. 

Mutual Funds have to face a stricter regulatory environment as the industry is regulated by the conservative capital market regular Sebi. As a result, there is limited flexibility in fixing fees and pricing. Insurance companies have a relatively less stringent environment as the industry is regulated by Irda, which is less conservative in its regulation. This allows more flexibility for companies to structure their products and fees.

Source: http://economictimes.indiatimes.com/Features/Investors-Guide/MFs-to-face-greater-obstacles-with-entry-load-gone/articleshow/4850274.cms?curpg=2

Walk path of corporate governance, win investor trust

The Reserve Bank of India (RBI) in its credit policy has mentioned that a big thrust on governance reforms is needed to inspire trust and confidence in potential investors. 

“The medium-term challenge is to improve the investment climate and expand the absorptive capacity of the economy... the second big task is a big thrust on governance reforms that should inspire the trust and confidence of potential investors,” the central bank said in its policy statement. 

Most fund managers are unanimous in their view that corporate governance standards are far better than those in most emerging markets. 

For instance, despite China’s economy growing at a faster rate than that of India, the latter is a preferred destination for global portfolio investors, because of better disclosure norms and governance standards. 

“On a relative basis, India fares much better than most other emerging markets when it comes to corporate governance. I don’t think there is much dispute about that,” says Navneet Munot, chief investment officer, SBI Mutual Fund. 

“True, there may have been a few instances of rules having been violated. But then, those are one-off issues, and that is the case even with developed markets, ” he says. 

Agrees another fund manager at a private insurance firm. “Corporate governance issues are not what are holding investors back at this point.... they are more worried about other things like the economic slowdown and high fiscal deficit,” said the fund manager, who did not wish to be named. 

“Corporate governance is a combination of structural features and qualitative aspects,” says Pawan Agrawal, director, corporate and government ratings, Crisil. “The structural features are driven by regulatory requirements, such as the frequency and extent of disclosures to be made to the stock exchanges, regulations on independent directors on a company’s board, etc. On this front, India is much better placed compared with most of its peers in the emerging markets space. 

“The other aspect is a qualitative assessment of how governance is followed in practice. It is hard to generalise on the qualitative aspect of governance, as it differs in varying degrees across companies. So, a (Indian) company can adhere to most of the regulatory requirements, but we need to assess the spirit with which governance process is adhered,” he adds.

Source: http://economictimes.indiatimes.com/News/Economy/Policy/Walk-path-of-corporate-governance-win-investor-trust/articleshow/4832150.cms

Mutual funds offer flexibility

Mutual funds in India are financial instruments, handled by fund managers, also referred as the portfolio managers. The Securities Exchange Board of India regulates the mutual funds in India. The share value of the mutual funds in India is known as net asset value per share (NAV), which is calculated on the total amount of the mutual funds in India, by dividing it with the number of shares issued and outstanding shares on daily basis. 

Mutual funds in India offer flexibility by means of dividend reinvestment, systematic investment plans and systematic withdrawal plans. As these funds are available in small units, they are also affordable to the small investors. The fees charged for to the custodial, brokerage and others services is very low in case of mutual funds. These funds have the option of redeeming or withdrawing money at any point of time. The mutual funds in India have low risk as it is managed professionally. 

What are mutual funds? 

Understanding mutual funds is easy as it's such a straightforward concept. A mutual fund is a company that pools the money of many investors, its shareholders to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. 

Those securities are professionally and efficiently managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio - entitled to any profits when the securities are sold, but subject to any losses in value as well. 

For the individual investor, mutual funds propose the benefit of having someone else manage your investments and diversify your money over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds. 

In general mutual funds fall into three general categories: Equity funds are those that invest in shares or equity of companies; Fixed income funds invest in government or corporate securities that offer fixed rates of return are; While funds that invest in a combination of both stocks and bonds are called balanced funds. 

The first thing that has to be kept in mind is that when you invest in mutual funds, there is no guarantee that you will end up with more money when you withdraw your investment than what you started out with. 

That is the potential of loss is always there. The loss of value in your investment is what is considered risk in investing. At the cornerstone of investing is the basic principal that the greater the risk you take, the greater the potential reward. Or stated in another way, you get what you pay for and you get paid a higher return only when you're willing to accept more volatility. 

Risk then, refers to the volatility - the up and down activity in the markets and individual issues that occurs constantly over time. This volatility can be caused by a number of factors - interest rate changes, inflation or general economic conditions. But it is this very volatility that is the exact reason that you can expect to earn a higher long-term return from these investments than from a savings account.

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Mutual-funds-offer-flexibility/articleshow/4832218.cms

Entry fee ban unsettles money managers

India's fiercely competitive fund industry is set to become even tougher for fund managers as a ban on entry fees slows growth, adds to distribution costs, cuts profitability and delays the path to breakeven for newcomers.
The country's stock market regulator said earlier this month it would abolish front-end or entry fees charged by mutual funds from August 1, a move aimed at cutting costs for investors and to discourage aggressive selling.
The ban threatens the incomes of over 87,000 distributors, agents who sell funds for a fee, and bring more than 90 percent of the business to money managers. It is expected to be particularly hostile to small and new players who depend on agent networks.
Beyond a handful of firms such as Reliance Capital Asset Management and UTI, Indian money managers have limited reach and rely heavily on distributors to build up their client base.
The move will also make it harder for the more than 20 would-be entrants into the market, which is forecast by Boston Consulting Group (BCG) to manage $520 billion by 2015, compared with $120 billion now.
Allianz, UBS and Credit Agricole are among foreign firms looking to set up shop in India.
"It's bit of a blow ... a lot of the AMCs will have to look back at their strategy," said Sanjeev Gupta, chief executive of the emerging market investment unit of South Africa's second-biggest insurer, Sanlam.
"It's not just something that affects newcomers," said Gupta, whose firm is looking to enter the Indian market and had anticipated a ban on entry fees.
For existing players, it would mean taking a hit on revenues to pay agents at a time when sales have dropped and operating expenses have nearly tripled to 113 basis points since 2004 due to higher marketing, distribution and administrative expenses.
The upcoming rule change has led to a scramble to launch funds before it takes effect. Units of Religare, Canara Robeco, JPMorgan, BlackRock and Franklin Templeton are among 10 firms who have launched funds in July.
LONGER PROFITABILITY PATH
Domestic money managers typically charge about 2.25 percent as entry fee on equity mutual funds, their most profitable assets, and pay the entire amount as fees to distributors.
By comparison, funds charge three to five percent in Singapore and about one percent in Europe and the United States.
Funds also offer 30-100 basis points in yearly recurring fees to agents which comes out of their annual expenses capped at 2.5 percent of the assets. Funds now fear they will have to sweeten the other commissions and pay entry fees from their revenues.
While the industry is busy figuring out a new compensation model, many expect a hit of about 5 to 20 basis points on annual investment management fees of about 55-58 basis points, depending on how aggressive the large players become to sustain growth.
"The entry barriers have been raised," said Rajnish Narula, chief executive of the Indian fund unit of Robeco.
"For the new player, the break-even gets delayed a little bit more. You need to have the sustaining power which means you need to have capital to be able to delay your break-even," he added.
BCG estimates a firm would need at least 100 billion rupees ($2.1 billion) under management to break even.
Of India's 36 fund firms, only 15 managed assets in excess of $2.1 billion in June, according to data from the Association of Mutual Funds in India.

DISTRIBUTION HEADACHE
With investors in the top 20 cities accounting for 90 percent of industry assets, according to KPMG, funds are worried that lower payments will cut the incentive to distributors to expand into smaller markets in order to fuel growth.
Instead, distributors might opt to sell other investment products, such as those offered by insurance firms that could earn them up to 30 percent of the first premium as upfront fees.
Distributors have already threatened to stop selling funds and said they might go to courts over the fee ban.
"That's the fear. If you increase regulation of one financial product, people would move to a different financial product which is not necessarily better," said Ed Moisson, director of fiduciary operations for Europe at global fund tracker Lipper.
While the next couple of years will be tough for fund houses and distributors adapting to the new compensation model, longer-term prospects remain bright.
PRESENT TENSE, FUTURE PERFECT
India had just 0.3 percent of the $18.97 trillion global asset management industry in 2008, and only 7.7 per cent of its household savings went into mutual funds as compared to 26 percent in the UK, according to data compiled by KPMG.
With one in every six human beings on earth an Indian and rising income levels of its middle class, already larger than the population of the United States, the country presents a powerful long-term lure for money managers.
In the last two years the Indian fund industry has attracted the likes of JPMorgan, Italian bank UniCredit's Pioneer Global arm and France's Axa.

Source: http://in.reuters.com/article/topNews/idINIndia-41363820090728?sp=true

Mutual fund managers comment on RBI's policy

The RBI left key rates unchanged at its first-quarter policy review on Tuesday. The bank said it expects the economy to grow 6 percent this fiscal and inflation at 5 percent by end-March 2010. The Reserve Bank of India also said it will maintain the accomodative stance of monetary policy until robust signs of recovery are visible, adding that its exit strategy will be modulated in line with macro-conomic developments.
Following are comments from mutual fund managers on the policy review:
RAMANATHAN K, HEAD-FIXED INCOME, ING INVESTMENT MANAGEMENT: "The status quo on key rates were in line with expectations. The policy maintains a balance between the nascent recovery and the need to nurture the recovery and the necessity to moderate the accommodative stance when inflationary trends emerge. "The RBI has also upped the inflation expectation to 5 per cent from 4 per cent by March 2010, again something which was expected by the market. With no surprises in the policy we expect the market to shift focus to the government borrowing program. "With front loading of the borrowing program, the supply is expected to reduce as we go along which would be positive for the markets in the short term. However with growth picking up and inflation rearing its head towards the end of the year we expect yields to head higher in the medium term."
LAKSHMI IYER, HEAD-FIXED INCOME, KOTAK MAHINDRA MUTUAL FUND: "Accomodation in stance to continue for now but not for eternity as macro economic situation may warrant change in stance in future. "Shorter end of the curve to remain supported. Longer end to trade range bound in response to OMO purchase and auction supplies."
MAHHENDRA JAJOO, HEAD-FIXED INCOME, TATA ASSET MANAGEMENT: "It's pretty much in line with expectations. People were expecting rates not to change and RBI to reassure about the credit policy till economic growth pick-up happenes. "I don't think there is any significant move in the bonds.

Source: http://economictimes.indiatimes.com/News/Economy/Policy/Mutual-fund-managers-comment-on-RBIs-policy/articleshow/4829103.cms

Entry load ban: MFs may pay more trail commission to distributors

Distributors and fund houses are looking at different ways to counter the Securities and Exchange Board of India’s (Sebi’s) ban on entry load from August 1. The ban announcement came on June 18.

Industry sources said fund houses could increase the trail commission for equity funds to compensate distributors. At present, fund houses pay 0.25 to 0.75 per cent as trail commission to distributors for equity schemes. This number, according to some distributors, could rise up to 1.25 per cent. Trail commission, which is paid to distributors on a quarterly basis, for debt funds is slightly lower at 0.1-0.5 per cent at present.
Sources said any increase in trail commission for debt funds was unlikely as there was minor or no entry load in a majority of these funds.
“It depends on the asset management company’s (AMC’s) strategy whether it wishes to increase trail commission, or upfront commission, or go for a combination of both,” said a distributor. Some distributors said if an AMC was well-established, it would increase only trail commission. This could come from the fund management fees it collected from investors annually. However, smaller fund houses might have to pay both higher upfront and trail commission to promote their products. Some fund houses felt that there could be other ways in which they could help distributors garner more business instead of hiking trail commission.
Amit Gupta, vice-president & country head (retail sales), Taurus Mutual Fund, said, “We will not increase trail commission. We believe in helping intermediaries through marketing support, such as organising joint meetings, which will help them get clients. We are trying to educate distributors as much as possible to make them financial advisors.”

Source: http://www.business-standard.com/india/news/entry-load-ban-mfs-may-pay-more-trail-commission-to-distributors/365102/

‘Asset management is a low-margin business globally’

I find it difficult to envisage funds in India taking their products directly to clients. The awareness of funds is not very high, and the average retail client is not very comfortable deciding from the vast array of choices. That’s why we have to rely on third party distributors.

Mr. HARSHENDU BINDAL, PRESIDENT, FRANKLIN TEMPLETON INVESTMENTS INDIA

He would like to see the Indian mutual fund industry evolve to manage assets for different classes of clients — retail, high net worth and institutional, says Mr Harshendu Bindal, President, Franklin Templeton Investments India. Explaining h ow the Indian MF model is very different from the West, he also talks of why the industry may find the transition to a zero-entry load regime challenging in the short term.
Excerpts from the interview:
You have overseen Franklin Templeton’s operations in several regions before taking up this India stint. Would you say a fund-house focussed wholly on retail investors is not viable in India?
It is not a question of being viable; there are certain fund houses globally which do focus on retail clients alone. But my question is: why restrict to one segment alone?
I would like to see the mutual fund industry in India grow into an asset management industry which manages assets for different classes of clients — retail, high net worth and institutional investors. If you look at the way the Indian industry has grown, you will see that almost half the money managed is invested in liquid and liquid-plus segments that reflect corporate flows, and only half is in the retail segment.
Given that we have over 38 different fund houses managing just $120 billion; that limits the scale advantages to players. Globally, asset management is emerging as a low-margin, high-volume business. At one point in time, in the global context, $500 billion was considered a large asset size. Today, there are funds managing even $1-2 trillion.
The other point is that if you look at the developed markets such as the US, the bulk of the money comes into the industry through 401K benefit plans and pension plans. That the fund industry cannot meaningfully participate in either of these segments in India is a big constraint.
Even in the US, the proportion of funds sold directly is not high.
Is that because expanding distribution requires massive investments?
Unlike insurance or banking, the mutual fund business is a low margin one. In fact, the asset management industry does not invest directly in building a large sales force in any part of the world. Clearly third party distributors are very important.
Currently there are only 75,000 AMFI certified agents in the country which is very low for a country India’s size. That entails a lot of education and investment; the low margins of the industry are not allowing it to make that investment.
Seen in that context, how will Franklin Templeton react to the entry load waiver on mutual fund schemes proposed by SEBI?
The objective of the move is clearly to benefit clients through reduced fees — that is largely a good goal. However, operational challenges over the short term need to be addressed, as distributors/fund houses evolve suitable business models. Also, as we have been saying, there needs to be parity amongst different financial service providers in terms of regulations and transparency.
The challenge is that if funds cannot compensate distributors, they will have to seek it from clients, who might not be amenable to paying over the short to medium term. As distributors have the choice of selling other products, there may be pressure on AMCs to compensate distributors out of their revenues relatively more, compared to current levels.
As fund houses do operate under fee structures that are controlled, there may not be steep price differentials among fund houses. Even when we talk about increased trail fees (recurring fee paid to the distributor), there isn’t much room. Therefore, I don’t see us returning to the old revenue streams for distributors or manufacturers. We have also seen similar moves in countries like Australia and UK, but the effective dates are 2010/2011, giving room for seamless transition.
Franklin Templeton will continue to focus on selling products through its distribution partners. I find it difficult to envisage funds taking their products directly to clients. The awareness of funds is not very high, and the average retail client is not very comfortable deciding from the vast array of choices.
But is it really so difficult to get investors to pay a separate fee? Retail investors do pay separate brokerage on equity market transactions.
When you compare mutual funds to equity, it is important to know that the fee on equity investments is based on transactions which are quite frequent. With funds, the investments are expected to be of a longer duration, with the fee being collected mainly for advice. When you have a longer duration in mind, you cannot operate on a transaction-fee equivalent.
Can an online platform where investors buy funds directly, replace the traditional distribution channels?
An online platform would be suitable for clients who are well-informed and are only looking for convenience. But we feel that Indian investors, by and large, are not that well aware and do need advice from distributors on choosing between products. The second disadvantage that I see with online platforms is that clients have tendency to get into a trading kind of mindset.
With funds, it would be better if clients took a long term approach and tailored their investments to a proper financial plan based on their needs and risk profile.
Investors in India do tend to chase returns. So have you seen inflows into your equity funds pick up after the post-election rally?
We are beginning to see a lot more interest and activity from investors. Call volumes to our call-centres have actually tripled and we are witnessing flows into our equity funds.
We believe that timing becomes less of an issue with a longer investment horizon and that’s what we tell our investors.
We have consistently held that timing the market is difficult. When this rally happened, for instance, not only retail investors, but many investment professionals were caught off guard!
How is your new theme fund- Franklin Build India Fund differentiated from the host of other infrastructure funds?
Through this fund, we are looking to offer investors access to a wide range of themes in one single offering, representing opportunities in the key building blocks of the Indian economy.
The way we look at it is - there are three main constituents of the economy, investment, consumption and exports. FBIF focuses on the investment side. We at FT are launching a new fund after a long time. We try to launch products that are sustainable over the long term. When we look at new products, we see if the product is different from our existing products and if it presents a sustainable idea.
Isn’t the investment theme overheated, with much of the stock market action happening around the public spending theme in recent months?
We don’t look to timing the market when we launch our funds. We looked at valuations for these sectors and they were either at or below long term averages. That suggests that, from a valuation perspective this isn’t a bad time to invest in these stocks. The question is whether we find enough value for the medium to long term — which we are finding at this juncture.
Typically we have found theme funds holding large cash positions and underperforming diversified peers over the last one year. What is your stance on this?
One, we tend to be fully invested in our equity funds and as a fund house, we do not take cash calls. We think that has to be taken care of by the advisor and the investor when the asset allocation is decided on.
That’s the reason why we also looked at a more diversified theme and not just physical infrastructure. Through this, we hope to have more opportunities across market cycles.

Source: http://www.thehindubusinessline.com/iw/2009/07/26/stories/2009072650110700.htm