Sunil Singhania, Head-Equities talks about the rationale behind launching Reliance Close Ended Fund Series-A with Cafemutual.
Tell us about Reliance Close Ended Equity Fund Series-A? What is the rationale behind launching this fund now?
Equity market has started its recovery after a long period. Country’s macro-economic indicators have begun to improve after a slew of government measures. Current Account Deficit (CAD) has fallen drastically while fiscal deficit and core inflation are under control. Corporate results of September quarter are quite decent. Major economies like US, Europe and Japan have also shown signs of revival. All these factors indicate a positive outlook for the forthcoming years.
Alternative asset classes are struggling at the moment. Equity as an asset class outperforms other assets classes over a long period of time. From an investor’s perspective, it’s a good time to start looking at equity investments as market has picked up momentum and could yet scale new peaks.
Though the market has reached its all-time high, the rally was driven by a few stocks. A major section of the market is trading at significantly lower level and these companies are available at a good bargain. Keeping these factors in mind, we are launching this closed ended fund with a horizon of five years. We are optimistic that economy will start to revive within 6 to 12 months.
Presently, we are at the bottom of an economic cycle. We are of the view that this cycle will pick up within two years but the actual benefit comes after three years.
Are you looking to launch a Series-B in the future?
We are committed to launch schemes which are good for investors. It is possible that we would launch next series but right now we are only focusing on this fund.
What would be the investment approach and strategy of your new fund? What are the parameters that the fund manager will consider while investing?
Some investors tend to invest in stocks which are doing well irrespective of their valuations. Presently, only a few stocks are trading at par with their respective valuations. However, if you look at business of some companies, you may find that a few of them have a great potential to do better over next three to four years but are undermined due to near term challenges. Hence, our basic idea is to invest in businesses rather than stocks. We will invest in companies which can sustain long term growth in the next three to five years.
As mentioned, we have found that some companies in the mid-cap segment are available at a good price. Over the next few years, these companies will start growing. Also, the companies which are not making profits due to sluggish demands but have a growth potential in the coming months. Since no new capacities are coming in, the existing companies will start growing once demand picks up.
We will not call it value fund since our theme is to invest in growth potential companies. For instance, if we pick up some pharmaceuticals and IT stocks which are available at reasonable prices, it should not be considered as value picking. If we feel that a company can sustain higher growth in next 3-4 years we will pick it. We need to see visibility of growth in companies.
What kind of sectors the fund will take exposure to?
It is going to be a fund which will be well diversified across sectors and market cap.
How does the close-ended nature of the fund help in delivering better returns as compared to open-ended funds?
If you start looking at tickers you will be swayed by near term performance. An open ended fund would have to keep a close watch on benchmark on daily basis. But in a closed ended fund, the philosophy is investing in stocks which can deliver optimal returns to investors over a period of time. The closed ended nature helps us to invest in growth potential business and gives an adequate time with a flexibility of setting a definite exit point.
How confident are you that the fund will achieve its objective at the end of five years?
We are very confident about this fund since we are optimistic about economic growth and potential of many companies.
Which kind of investor is this fund suited for?
Investors who have a long term financial goals can invest in this equity fund. Despite its close ended nature, the fund will book profits selectively and distribute the dividends.
After the fund completes five years will you make it open end?
No.
