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JM Basic Fund to go open-ended

JM Mutual Fund's decision to convert its petrochemicals fund, JM Basic into an open-end fund could drastically reduce the AMC's asset base of around Rs 12.50 billion. The reason: with a size of Rs 10.4 billion on September 29, 2000, the first petrochemical fund of the Indian fund industry accounts for nearly 85 per cent of the AMC's assets under management. Although JM Basic was to open for repurchase in July this year, the AMC did not commence repurchase of units (the repurchase was offered in July every year from 2000). Any sizeable redemption from the fund now could destabilise the AMC since the other seven JM funds manage a combined corpus of less than Rs 2 billion.

Launched in 1997, JM Basic is a 15-year closed-end fund due for redemption only in 2012. The fund had mobilised a whopping Rs 4.21 billion during its IPO in 1997, even as other equity fund IPOs got a tepid response. The impressive collection is attributed to large-ticket investments, since the fund has only 600 investors.

The AMC will focus solely on corporates and high net worth individuals, once the fund goes open-end since the minimum investment is pegged at Rs 10 million. In fact, the minimum investment of Rs 10 million will be the highest for any mutual fund in the Indian fund industry. Currently, not even short-term debt funds, which are essentially targeted at corporate investors, have such a high minimum investment. On the other hand, the minimum investment was only Rs 1000 when the fund had initially tapped investors.

Since its launch, JM Basic has given an impressive annualised return of 30.54 per cent, with the net asset value at Rs 24.75 on September 29, 2000. However, the returns have come due to the fund's concentrated holding in Reliance Industries. On August 31, the fund had nearly 93 per cent (Rs 9.40 billion) of its assets in the petrochemical major, with the fund holding 27.9 million shares of the company. In fact, the fund holds 2.65 per cent of Reliance Industries' equity capital of Rs 10.53 billion (on March 31, 2000). This makes JM Basic probably one of the largest equity fund investors in Reliance Industries. The mutual fund giant, US-64 holds around 78.9 million shares (7.5 per cent) in the company across its funds.

Besides, the fund had invested in Reliance Industries very early in its life. Since its launch, while JM Basic has given an annualised return of 30.54 per cent, the company has given an annualised return of 28.07 per cent during the same period. Thus, the fortune of the fund has been very closely linked to Reliance's performance on the bourses.

The AMC has decided to benchmark the fund's performance against S&P Petrochemical Index on going open-ended. It will have to benchmark the weights of individual scrips in line with the petrochemical index. Thus, the fund will have to drastically reduce its exposure to Reliance Industries. The benchmark index has 12 companies and includes Bayer ABS, Chemplast Sanmar, Finolex Industries, Reliance Industries, Indian Petrochemicals Corporation, Ganesh Benzoplast, National Organic Chemical Industries and Vinyl Chemicals.

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