Kothari Pioneer Mutual Fund is all set to launch its FMCG and pharma funds. Tata Mutual fund has also indicated that it will launch two sector funds, dedicated to life sciences and technology. The latest offering, Prudential ICICI FMCG Fund, an open-end equity fund provides an opportunity to acquire a diversified portfolio of FMCG stocks with a minimum investment of Rs 5000.

FMCG Sector

The fast moving consumer good (FMCG) sector essentially includes companies that cater to day-to-day needs. Since these commodities are basic necessities, the demand for them is relatively stable and companies in this sector remain largely unaffected by downturns in the economy.

Besides, with the increase in the national income, the percapita consumption must rise leading to a greater demand for these products and higher sales for these companies. More important, is the higher profitability on account the strong brands that these companies, particularly the multinational possess.

Further, vast distribution network, strong management and financial strength put these companies in an advantageous position, giving them the much needed advantage to score well and stay ahead in competition. So it is not without reason that these stocks have been star performers in the stock markets over the past couple of years. In the past three years, the sector has given an annualised return of 37 per cent, while the BSE 200 gave a mere 5 percent return.

As building a diversified portfolio of a sample of Hindustan Lever, Procter and Gamble, Britannia Industries, Nestle and Smithkline Beecham Consumer will cost a fortune and is beyond affordability of an individual investor, the best way to own this portfolio is through such a fund. Also being an open-endfund, the fund offers almost instant liquidity and the investor can offload his position the moment he senses any change in the outlook for the sector. Apart from all the merits of the FMCG sector itself, the fund will carry the features typical of sectoral funds. The fund is likely to be more volatile than a broad diversified portfolio and the market. Sector funds do not constitute a complete investment programme and should be held along with other more broadly diversified portfolios.

However, investment in sectoral funds is the ideal way to take exposure to an industry that one is optimistic about. While taking exposure to one particular stock will mean assuming company specific risk, formulating a diversified sectoral portfolio will be prohibitively expensive. A sector fund provides diversification within the chosen group and minimises company specific risk.These new investment options of true sector funds provide a sophisticated investment vehicle to the retail investor with highest possibleconvenience of investing, transparency and liquidity. They deserve a closer look for investment consideration.

--Value Research