Fidelity has filed a draft prospectus for Fidelity Forward India Fund, which is
a plain vanilla equity diversified fund. It will invest in the same set of
instruments as any other equity fund – equities, warrants, convertible
instruments, government and corporate debt and money market instruments. The
Fund would also be investing in exchange traded funds, derivatives and foreign
securities. If permitted by the Securities and Exchange Board of India (SEBI),
the Fund may also engage in stock-lending. In short, it is a run-of-the-mill
fund. Fidelity will select stocks by “a combination of value and
contrarian strategies to identify stocks which are trading at less than their
assessed values.” Again, this is exactly what other fund managers preach,
though it is funny to see a fund company using the term ‘assessed value’
instead of ‘market value’ as if we are talking of insurance claims.
The Fund would be benchmarked against the BSE 200 index. There are 42 equity
diversified funds which are benchmarked against the BSE 200. In fact, all the
three Fidelity Funds (Fidelity Equity Fund, Fidelity India Special Situations
Fund and Fidelity India Growth Fund) also use BSE 200 as the benchmark.
All three have the same investment strategy, which includes diversification,
bottom-up stock picking and no-cap bias whereas this new Fund would be a
combination of value and contrarian strategy. In other words, there can hardly
be much difference between Forward India Fund and Fidelity’s three
All this would have been fine if Fidelity were one of the top-performing fund
houses. It isn’t. Fidelity Equity Fund (FEF) was launched on 16 May 2005,
joining 93 equity diversified funds. Since inception till date, the Fund has
gained 23% marginally outperforming its benchmark, the BSE 200, which was up
20%. But 70 of the 93 funds had outperformed their benchmarks and FEF was not
among the top 10. Fidelity India Special Situations Fund (launched on 22 May
2006) has gained 11% since inception and has underperformed its benchmark, the
BSE 200, which was up 12%. Fidelity India Growth Fund (launched on 23 October
2007) has outperformed its benchmark, the BSE 200, marginally since inception.
The Fund was down 12% whereas the index was down 13%. Clearly, there is nothing
special about the new Fund or the fund house. There can’t be any reason
to invest in another Fidelity fund, merely bearing a different name. For
Fidelity, though, another new fund means more money to manage and more fee
High Risk Appetite
A Micro-cap fund from Reliance shows
The fund managers at Reliance Mutual Fund
obviously believe that we are at the edge of a monster bull market. They have
filed a plethora of schemes with the regulator, one of which is a micro-cap
scheme, which shows extreme risk appetite. There is only one other micro-cap in
existence – Micro-Cap Fund of Blackrock, which was launched at the height of
the last bull market.
Reliance defines micro-cap stocks as those whose market capitalisation is
between the highest and lowest market capitalisation of companies on the BSE
Small-Cap Index. The scheme would be measured against the BSE Small-Cap Index.
As an investor, one would invest in micro cap stocks only when the broader
market is clearly on a major bullish trend because micro-caps move faster than
other stocks in a full-blown bull market. Conversely, when the trend changes,
the decline in these stocks is the sharpest. Reliance is probably well aware of
this pitfall. Interestingly, the prospectus says that the scheme will reduce
its exposure to equity at a time when good investment opportunities
aren’t available and will move the money into debt and money market
If Reliance does bring this scheme, it will be worth investing a small amount.
Reliance is a smart fund company. Since 1994, the fund company has delivered a
great performance. If anyone can play the micro-cap game of chasing momentum
and then moving to cash when the market is on a low trajectory and micro-caps
are about to crash, it is Reliance. If you like the idea, put a little bit of
money. If it works, the returns are going to be large.