SBI Mutual Fund has announced the launch of its SBI PSU Fund

 

 

It is an open-ended equity fund.

 

The fund will mainly invest in a basket of stocks of Public Sector Undertakings (PSUs) and a small portion in debt instruments issued by PSUs. While it will invest up to 100 per cent in equities of PSU, it may also allocate up to 35 per cent in debt.

 

Through this fund, the fund house aims at capitalising on stored value through disinvestment. Disinvestment tends to improve price discovery, valuation and liquidity of such stocks.

 

The fund will cherry pick PSUs that are likely to emerge as more robust and vibrant players in different industries of the economy as the disinvestment process takes place.

 

The industries where PSUs have a strong presence are infrastructure, exploration and exploitation of oil and natural resources, technology development and capital goods.

 

Currently there are two other funds falling under the equity category which follow a similar investment strategy - Sundaram BNP Paribas PSU Opportunities Fund (launched in December 2009) and Religare PSU Equity (launched in October -2009). Others are ETFs -- Kotak PSU Bank ETF and PSU Bank BeES.

 

The reasons why one could look at an NFO based on PSUs are as follows: PSUs have strong fundamentals, are generally a leading players in their industries and in many cases are near monopolies. These companies also showed greater resilience than their private sector counterparts during the economic downturn. Hence the PSU investment theme looks promising.

 

However, the fund's true potential lies in eventual privatisation which leads to significant value unlocking. This looks unlikely in the foreseeable future. What the government is doing currently is merely dilution of its stakes. Also, nothing prevents a diversified equity fund from investing in PSUs when opportune, while a PSU Fund will be constrained to invest in PSUs only.

 

SBI PSU Fund will be managed by Rama Iyer Srinivasan, who holds 16 years of experience in the area of financial services, apart from holding an M.Com and MFM degree. Presently Srinivasan is also the fund manager of Magnum Equity Fund , Magnum Global Fund Magnum Sector Funds Umbrella - Emerging Business Fund and SBI Infrastructure Fund - Series I.

 

The fund will be benchmarked against BSE PSU Index. The fund offers both growth and dividend options. One per cent exit load is applicable if you redeem within three years and none thereafter. The minimum application amount will be Rs 5,000. The new fund offer (NFO) opens on May 17, 2010 and closes on June 14, 2010.