Sublime Consulting

Kiran from India wanted to know if its a good idea now to invest in DSP ML T.I.G.E.R Equity Diversified Fund..

Kiran..before I answer to your question on whether to invest in this fund or not, would like to give a little background about the fund..

Background :
Tiger in short for The Infrastructure , Growth and Economic Reforms Fund was launched with much fan fare in June 2004, by DSP Merrill Lynch just ahead of the General Elections of 2004, when the markets were shining and NDA launched the India Shining Campaign.
The fund bets and believes on the growth oriented infrastructure and economic reforms story.
Even though the NPA government was defeated and UPA came to power, it believed the reforms are here to stay.

Tiger Fund pre-dominantly focuses on infrastructure related stories where it has the maximum exposure..
It continues to believe that the potential for growth is enormous in that sector in the coming years..
Tiger Fund is one of the best performing funds in the equity diversified fund category with CPR1 ratings by CRISIL. Value Research Online has voted it as a 5 star fund category. The fund is well diversified and has a portfolio of 64 stocks and 2 derivative positions.
One of the interesting fact is that it has almost 12.5% in cash and cash equivalents which would come in handy during market downturns to capitalize on buying opportunities. This is the portfolio update as on 31 Aug 2007. The AUM of the fund stands at on Aug 31 2007 is Rs.2241 crores.

The fund has consistently out- performed the benchmark category of BSE 100 by more than 10% year on year.
Infact, it has exceptionally done well in the last one year where its returns are 52% and the BSE 100 gave returns of 32.42%..

Observations : As you might know, mutual funds are long term wealth creators. It is advisable to stay put in these funds for atleast 3 years if not 5 years.
With India story intact, foreign and domestic fund flows rushing in, thanks to the FED funds rate cut and the rupee appreciation, the market trends are extremely bullish.
In the short to medium term, the volatility in the markets will be very ferocious.. Factors like high oil prices, political crisis could play spoil sport in the short to medium term..

While at the same time, the global trends do point to an impending financial crisis, we seem to be fairly protected from the US recessionary trends/slowdown due to our domestic consumption story and demographic dividend which plays to our advantage. Of course, we have to address two key bigger issues like infrastructure and employability issues , but the process of reforms/development is irreversible…

We still need to wait and watch as to whether Asia, specifically India will de-couple from U.S. It does look like it will happen sooner or later..

Factoring all these, my recommendation for Kiran would be to invest in the fund, provided he has a clear time horizon of minimum 3-5 years and opts to go for systematic investment plan, which would ensure that the rupee cost averaging and power of compounding would generate extra kicker to his returns.

Jennifer from Canada asked a very interesting question in one of the websites I frequently visit.
She wanted to know if one were to get Inheritance Money, where and what should one invest in.

Jennifer needs to ask 3 questions to herself before investing .. why would she want to invest? What for? How Long?
By asking these questions :
1. She would get clarity on her goal or goals for investing
2. She would get to know the time horizon for investing in each of her goals.

The next step forward for Jennifer would be to look at her risk profile and accordingly plan her asset allocation. That is, how much of her investments should be in equity, debt, realty and cash. Once the asset allocation is through, she could get down to security selection. That is what product mix or portfolio to be constructed for each of her goal. Say for example, if she is planning to buy a house in the next 1 year or so..its better to put all of her allocated money for the goal into debt product which invests in treasury bills or government securities. Because she needs the money back to buy that house..

If you have questions like Jennifer has, please feel free to write in to me.. I would be happy to answer your questions..

Note : I had recommended Treasury Bills or Government Securities for the example we had taken, based on the context of the Country, Jennifer lives in - Canada and also factoring in the current global financial crisis that has roiled the markets, specifically the corporate debt market and money market funds[thanks to sub prime market crisis and CDO blow ups]. Case in point is couple of BNP Paribas Funds which went bust [funds that invested in the short term corporate debt] recently in U.S. and also the run on Northern Rock of U.K. [ last week depositors withdrew more than $ 3 Billion of deposits from the Morgage Lender]