The Open-Ended Equity Scheme Aims To Provide Investors With Long-Term Growth Opportunities
FOR the past one month, equity investors have been unsettled by the volatility in the stock markets. The credit crisis in Europe has suddenly introduced new downside risks. This gives an opportunity for savvy investors to look at businesses with good long-term track record, high corporate governance standards, low debt on books, good cash positions and large size of enterprise. The hunt invariably brings them to listed public sector undertakings (PSU) on Indian stock exchanges. SBI mutual fund has sensed it at the opportune time and has come out with its recent product —SBI PSU Fund.
THE FUND
This is an open-ended equity scheme whose investment objective is to provide investors with long-term growth opportunities, along with the liquidity by investing in a diversified basket of domestic PSU stocks. The fund will also invest in fixed income instruments and money market instruments issued by PSU and other entities. R Srinivasan will be the fund manager of the scheme. The fund manager can invest at least 65% of the money into equity and equity-related instruments of PSI companies, which also include exposures through derivatives. Investments in debt and money market securities are restricted up to 35% of the total assets of the schemes. The performance of the scheme is benchmarked against BSE PSU index.
OPPORTUNITY
The fund manager will invest in shares of PSU across sectors and market capitalisations. The investors in PSU space stand to benefit from the divestment process and business growth over long period of time. The companies in this space come from diverse sectors of the economy and occupy leading positions in their respective industries. High growth sectors like financial services, energy, engineering and capital goods are well-represented by PSU. The companies typically are high on corporate governance and depict operational efficiencies in their businesses. The space has done substantially well in the stock market. Over the past 10 years, the BSE PSU index has comfortably outperformed BSE Sensex by a decent margin. A point to note that in the recessionary times of 2008, the PSU space turned out to be more resilient offering peace of mind to the shareholders. High dividend payout results into higher dividend yield, PSU shares further attractive for equity investors. These companies are available at valuations lower than their private sector counterparts.
RISK REWARD
Investing in PSU space, though, appears to be a theme, it is less risky compared to many other sector funds, as the companies coming from this space come from across sectors and across market capitalisations. However, investors must understand that some of the business decisions and their profit distribution policies are dependent on government policies. These need not be profit maximising acts in all cases. Again, the point of valuation discount to the private sector peers may remain to be a perpetual boon for investors, leading to less than anticipated returns for investors in these companies. Also, there are some funds that are operational with a mandate to invest in PSU shares and PSU bonds.
FUND DETAILS
To take advantage of the opportunity, investors need to invest at least Rs 5,000 in this fund. There is no entry load. The fund charges 1% towards exit load if you decide to sell out before completing three years from the date of allotment. Investors are offered both growth and dividend plans. Dividend payout and dividend reinvestment options are available.
WHY INVEST? To benefit from a diversified portfolio of equity securities of companies that will deliver leading to value unlocking for shareholders
WHY NOT INVEST? Restrictive mandate does not allow the fund manager to participate in the opportunities in private sector
