Mutual Funds
Axis focus25: Staying focused

Theoretically right, practically tough

Axis Mutual Fund has filed an offer document to launch Axis Focused 25 Fund, an open-ended equity scheme. The scheme will invest 65%-100% in equity of 25 companies chosen from the top 200 in terms of market capitalisation. It will invest up to 35% in debt and money-market instruments with low- to medium-risk profile. We already have some 16 existing schemes with a similar objective. They have not done that well. Will Axis Focused 25 Fund do any better than the existing well-performing schemes?

Focused funds—portfolios with only a couple of dozen holdings—are getting attention in a market where stock selection is more important than ever. But focused fund managers have to tackle risk more proactively. They have less room for error. They emphasise in-depth stock research—digging into a company’s business and the quality of its finances and management, looking for the top prospects in myriad industries. And, as an extra cushion, managers have to buy shares at a discount to what they believe is the actual worth. Is this possible for all fund managers? It is tough. Take a look at the table.

This is why other schemes opt for diversification. It is a time-tested way to control risk. Focused schemes are more risky than the average diversified scheme because, with fewer holdings, a steep decline in one stock will have a greater impact on the portfolio. A stock that represents 2% or less of a portfolio cannot inflict as much damage as a 5% position. Plus, owning a broad group of unrelated investments can balance out a portfolio’s volatility

over time. The benchmark for the fund is S&P CNX Nifty. 



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ONGC likely to give NOC for Cairn-Vedanta deal by Dec end

The NOC will be given after Cairn Energy, its Indian arm Cairn India and the mining group sign a legally binding agreement accepting to share royalty and pay cess on the most important Rajasthan oilfields

New Delhi: State-owned explorer Oil and Natural Gas Corporation is likely to give its ‘no-objection certificate’ (NOC) to Cairn Energy Plc’s stake sale in its Indian unit to Vedanta Resources by the year-end, reports PTI quoting its chairman Sudhir Vasudeva.

“Our board had in principle given the NOC in September,” he told reporters here.

The NOC will be given after Cairn Energy, its Indian arm Cairn India and the mining group sign a legally binding agreement accepting to share royalty and pay cess on the most important Rajasthan oilfields.

The need for a legal document has arisen because Cairn India insisted on ONGC giving a no-objection to the Cairn-Vedanta deal before agreeing to twin conditions that the government had set for clearing the $9-billion deal.

“The agreement is in the final leg,” Mr Vasudeva said. “I am hopeful the NOC will be given before end of December.”

Cairn Energy, which holds a 52.1% stake in Cairn India, plans to sell a 30% stake to Vedanta. The government had in June, approved the deal subject to consent from ONGC, which is a partner in its mainstay Rajasthan block.

ONGC, for whom the Rajasthan project had been a losing proposition because it paid royalty not just on its 30% share but also on Cairn India’s 70% interest, has demanded an equitable sharing before the deal was cleared.

The mutual distrust has given rise to the need of a legal document where in Cairn will give in writing that it will pay Rs2,500 per tonne cess on its share of production from the all-important Rajasthan oilfields and also makes royalty payments cost-recoverable. ONGC will agree to issue NOC.

Cairn India does not pay any royalty on its 70% stake in the Rajasthan fields. Royalty, as per the contract, is paid by state-owned ONGC, which got a 30% stake in the 6.5 billion-barrel-field for free.

However, even before the $9.6 billion Cairn-Vedanta deal was announced in August last year, ONGC had demanded that like all other taxes, royalty should be added to the project costs, considering it as revenue earned from oil sales before profits were split between partners.

Cairn had opposed this as it would lower its profitability and had also initiated arbitration against the government contesting its liability to pay oil cess on its share. It believed that cess, like royalty, was also the liability of ONGC.

But Cairn Energy and Vedanta agreed to the conditions to get the deal cleared.


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