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Sun F&C Resurgent India Equity Fund

Aabhas Pandya

Sun F&C Asset Management Company is the first one off the block with an open-ended fund which will tap the opportunities arising out of acquisitions, restructuring, privatisation and turnaround of Indian companies. Named Sun F&C Resurgent India Equity Fund, the fund's initial offer opened for subscription on April 17 and will close on May 25. The fund has pegged the minimum investment at Rs 500,000, which means that the AMC will target only high net worth individuals and big-ticket investors.

Some other asset management companies, including JM and Cholamandalam Cazenove, shortly plan to launch funds with similar investment philosophy. These funds will primarily capture mergers and acquisitions (M&A) opportunities created by corporate consolidation, though restructuring and turnaround cases will also be a part of their investment strategy.

Sun F&C Resurgent India Equity Fund will offer dividend and growth options to its investors. The AMC will charge an entry load of 4 per cent, which is probably the highest load in fund IPOs in recent times. An entry load of 4 per cent means that for every Rs 100 invested, only Rs 96 will be available to the scheme for investments or in other words, the AMC will get Rs 20,000 by way of entry load on an investment of Rs 500,000.

"The load is in line with the load factor for similar funds across the globe. We want only serious investors who understand the concept of such a thematic fund and have the patience to wait for a restructuring or an M&A story to fructify. Hence, we have kept the minimum investment at Rs 500,000. There may be days when the net asset value (NAV) of the fund will hardly show any movement," says an official with the AMC.

Since the fund's investments are a test of patience for the fund manager, the fund is expected to have a low portfolio turnover. The portfolio of Sun F&C Resurgent India Equity Fund is likely to largely resemble a value fund with its focus on companies being privatised (large public sector undertakings), or companies restructuring their operations and showing signs of a turnaround.

Such companies are usually cyclical in nature with beaten down stock prices till the time the market sees opportunity in such counters by way of privatisation or turnaround. The fund is also expected to have a sprinkling of growth stocks like those from pharma, fast moving consumer goods, information technology and private banks, where acquisitions will consolidate those industries and drive growth.

Funds like Sun F&C Resurgent India Equity Fund have the potential to deliver high returns but will be heavily dependent on the fund manger's ability to identify and capitalise such opportunities. At times, the NAV of the fund could also be highly volatile if an acquisition falls through or restructuring fails to bring the desired return. Besides, the open-ended nature of such funds could turn to be their Achilles' heel. The fund could come under redemption pressure if it underperforms over a long period of time.

Source: Value Research

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