IDFC Mutual Fund has filed a draft offer document with SEBI to launch ‘IDFC India Consumption Fund’. The performance of such existing funds has been drab
The lifestyle of the Indian middle class may be undergoing a rapid upward shift and consumer products companies like Dabur and Godrej may be making tonnes of money, with a corresponding impact on their stock prices but mutual funds (MFs) dedicated to these sectors have not been able to take much advantage of it. Four mutual funds, which were launched exclusively to cash in on such themes, have all underperformed their respective benchmarks. Following the footsteps of such funds, IDFC Mutual Fund has filed its draft offer document with market watchdog Securities and Exchange Board of India (SEBI) to launch its open-ended 'IDFC India Consumption Fund'. The scheme is benchmarked against the BSE 200 Index and will invest 65% in equity and 35% in debt. The fund will invest in companies which benefit directly from rising income levels and associated domestic growth in India. IDFC Mutual Fund has a bouquet of 11 equity funds.
Currently there are seven schemes that are focused on the consumption theme. These are ICICI Prudential FMCG, Franklin FMCG Fund, Kotak Lifestyle Fund, Birla Sun Life GenNext Fund, HSBC Progressive Themes fund, UTI India Lifestyle Fund and Birla Sun Life Buy India Fund.
The IDFC scheme aims to generate capital appreciation by investing in a diversified portfolio of equity and equity-related securities, which are likely to benefit by increasing consumption demand in India. The fund will have exposure to sectors like auto, household goods, transportation and travel services, consumer technology, telecom, food, personal care, fashion accessories, restaurants, housing, leisure, entertainment and media.
Out of the seven existing consumption funds, four have underperformed their respective benchmarks. These include funds which are dedicated to FMCG as well. Among these, UTI India Lifestyle Fund, Kotak Lifestyle Fund and HSBC Progressive Themes Fund have yielded the least returns. The benchmark returns of ICICI Prudential FMCG and Franklin FMCG Fund are not available in the public domain. The funds launched in the year 1999 have posted an NAV return of 18% and 17%, respectively.
HSBC Progressive Themes Fund has disappointed the most. The fund, launched in February 2006, has yielded returns of 6% while its benchmark has posted 13.99% returns since the fund's inception. UTI India Lifestyle Fund and Kotak Lifestyle Fund also have not been able to keep up with their benchmarks. The former, launched in August 2007, has posted NAV returns of 4% while its benchmark showed 9% returns since launch. The latter, launched in March 2006, has yielded 6% returns when its benchmark has given 11.34% returns. Both these schemes are benchmarked against the CNX 500.
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I wish to bring to your notice my experience of IDFC Hybrid Infrastructure Portfolio; another PMS scheme which has lost money for us investors. In March 2009 I committed to contribute Rs 10 lacs to it and actually paid 50% i.e. Rs 5 lacs. The balance 5 lacs will be called by them when they need to deploy. The scheme has sent its one year performance report as of March 2010.
The highlights are:
1. total charges debited are Rs 56,946 i.e. in excess of 11%. upfront fee and management fee out of this is Rs 47,541 i.e. in excess of 9.5%
2. total investment done in last 1 year is Rs 44,680 i.e. less than 9%
3. this investment is in an IPO and not as usual private equity investment which this fund is supposed to be doing.
4. the balance money is kept in IDFC Money Manager Fund
5. thus at the end of the year my 5 lacs have become 486,000/
6. as you can see, the investment done is hardly any amount, infact the charges are more than the amount of investments effected.
7. while sending this account statement, they have given a big story as to how the process of private equity investment works and how difficult it is to deploy funds diligently.
thus we can see that how the PMS rip off works. ordinary funds have nearly doubled investments last year and IDFC has the dubious distinction of recovering more charges than the amount deployed.