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A good supplement

Prudential ICICI Mutual Fund has launched another sector fund - Prudential ICICI Technology Fund. The fund is available at par and is open for initial subscription from January 7, 2000 to January 28, 2000. The fund will charge an initial expense of 1.75 per cent, implying a starting net asset value (NAV) of Rs 9.825 for your investment of Rs 10.

The minimum initial investment amount is Rs 5000. The fund offers a growth and dividend plan besides the capital gains saving plan under section 54EA and 54EB of the Income Tax Act. The dividend plan of the fund will pay half-yearly or annual dividends.

As broadly perceived, the Prudential ICICI Technology Fund will not invest only in the information technology sector. It will invest in a broad spectrum of technology-intensive area. Software services and products, hardware, e-commerce, Internet, telecommunications, media, life sciences (including pharma, health management services and agrochemicals), and research & development firms.

Though the fund has highlighted sectors such as of IT, telecom, media and life sciences as the investment universe, these may not be the only technology-intensive industries or for that matter companies carrying on research and development. With a not-so-specific definition, there is enough room for other sectors to find a place in the portfolio.

Track record
In April 1998, ICICI Mutual Fund was renamed as Prudential ICICI Mutual Fund, after the UK-based Prudential Corporation acquired a majority control in ICICI Asset Management Company. After the change of control, Prudential ICICI has launched seven open-ended schemes. It has phenomenally improved the assets under its management, which have gone up from Rs 160 crore in May 1998 to Rs 2,100 crore in September 1999.

This has been achieved through rapid launches, aggressive marketing and high-pitch advertising, all of which helped it attract more funds. While Prudential ICICI has been successful in mobilising funds and setting up a higher standard in investor service, it's still early to evaluate the AMC's capability to manage a sectoral fund. In a brief period the AMC has established a modest track record of managing a diversified equity fund with steady gains and relatively less volatility.

Investment case
The fund can be expected to deliver above average returns compared to a diversified equity fund, entirely based on the brighter prospects for the underlying sectors in which the fund will invest.

The fund will also be more volatile than a diversified equity fund. But it will be relatively less volatile than a dedicated infotech or pharma fund as it will diversify its risks across technology sector stocks.

Besides, a sector fund contains stocks that react in a similar fashion, either up or down, to factors affecting the industry. A sector fund will have no other option but to stay invested in the pre-defined industry irrespective of its performance.

Hence, investors should look at these funds only as supplements to enhance their overall return to an already diversified portfolio. These funds are not a complete investment solution.

Mutual Funds

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