Moving from Focussed Advantage Fund to Growth Fund might just be for the better
MUMBAI: Principal Pnb has decided to follow in the footsteps of UTI Mutual Fund in merging some of its schemes. Starting November 2, the Principal Focussed Advantage Fund would be merged into Principal Growth Fund to “benefit from better economies of scale that will result in more efficient management of these schemes.”
Investors in the Focussed Advantage Fund, who do not want to shift to the Growth Fund, have an option to exit before the merger date without having to pay any exit load, which is 0.50% on both the schemes if units are redeemed within 180 days from allotment.
The fund house has set the timeframe for such exits at October 1-30.
Also, no entry load would be charged for entering the Growth Fund. Investors who decide not to exit would be allotted units of Growth Fund at the net asset value applicable on November 2, 2007.
Now, should one exit or allow his investment to be moved into the new scheme?
The Growth Fund was launched in October 2000, while the Focussed Advantage Fund introduced only in February 2005.
Both the schemes hit their 1-year peaks in net asset value (NAV) last Friday. As of that day (Sept 28), the Growth Fund’s NAV stood at Rs 59.63, while that of the Focussed Advantage Fund was at Rs 19.19.
While during the first half, last fiscal, the Growth Fund had managed to beat its peers, it has struggled in the first half this fiscal and trailed the average returns of the equity-diversified category.
The scheme’s 1-year return stood at 32.57% compared with the peer group average of 41.02%. The top diversified equity scheme has given a 1-year return of 81.59%.
The Focussed Advantage Fund returned 30.90% in the one-year period.
Shyam Bhatt, the fund manager of both the schemes, though said, “We have not really aimed for high returns as they are always associated with more risk. The scheme has a moderate risk, moderate return profile. So, in a very bullish market, we would have performed lower than the peer group. But when the markets fall, the downside would also be restricted.”
Only, the downside of the Growth Fund was more than that of its peers during the market slide in February this year.
The scheme’s assets have been declining, too. As per the latest available data, it had a corpus of Rs 260 crore compared with Rs 333.1 crore in October last year.
However, the cash position of the Growth Fund (6.31% of the corpus) is lower than the Focussed Advantage Fund’s 11.34%.
Besides, the Focussed Advantage has a much lower asset size of Rs 57.79 crore (as on August 31, 2007), which is difficult to manage.
What’s more, the Growth Fund’s returns have also been slightly better than that of the Focussed Advantage.
Also, the Focussed Advantage Fund is relatively more concentrated, with the top five stocks accounting for 24.17% of the assets, compared with the Growth Fund (19.87%).
The more concentrated a portfolio is , the more it will benefit from a scenario where its top holdings are moving up, but it will also suffer more on the obverse movement.
Any lowering of the level of concentration should therefore amount to lesser risk.
Hence, investors who choose to stay put may actually gain from being moved to the other scheme, though the NAVs of both the schemes have seen an almost similar uptrend and their portfolios, too, are more or less similar in terms of the top holdings.
All the same, there’s still no justifying the fund house’s decision to launch a scheme similar to an existing one and then merging it with the earlier one.
