Infotech Fund has grown at a blistering pace, clocking over 510 per cent returns in less than 16 months since inception. Give us an insight into the investment strategy that has delivered this performance?
A singular focus on high quality companies as defined by: the right strategy, high quality and motivated professionals, established/expanding client base, quality processes, client focus, ability to innovate, integrity and transparency.

For example, Infosys, one of the top holdings of the fund has delivered spectacular returns though it did not look very cheap a year ago on conventional valuation measures like P/E ratio. While we were confident, the market was surprised by the company's ability to maintain high growth rates in spite of the loss of their Y2K business. That combined with Infosys's ability to move up the value chain led to a re-rating of the stock.

Another, top holding, Mastek had a market cap which was a fraction of its revenues on account of problems with its product business and adverse impact of the Asian crisis. At that point, the market seemed to have written off the company.

We did detailed analysis and were convinced that the problems were temporary and that the management had the strength to come back on track. Our analysis was right and the stock has delivered a return of over 2000 per cent from our initial entry level. Other top holdings like Satyam and NIIT are also solid, high quality companies which have delivered the high returns in tune with their potential.

Many people feel that the IT sector is currently overvalued. What is your view of the prospects for this sector?
We believe there are still plenty of attractive opportunities for patient investors. Having seen many IT companies run up in the stock market, many lay investors have begun to believe that all IT companies will perform. This has created a craze which can lead to disappointment when some of these companies fail to perform over a period of time. However, the prospects for the overall sector continue to remain very bright.

We expect software exports to grow at a compounded annual rate of over 50 per cent for the next 5 years, and companies following the right strategy can grow at an even higher rate. In addition, a number of opportunities are opening up in the domestic market, especially in areas relating to e-commerce and convergence of technologies.

We also believe that opportunities are opening up for exports in new areas like networking, offsite network security management and IT enabled services. If investors can discriminate and latch on to the right companies, the returns going forward can still be very attractive.

There is a trend towards convergence of IT, telecommunication and media, with the blurring of traditional definitions. What does it mean to investors?
IT on a stand alone basis was a powerful tool for improving productivity, internal efficiencies and reducing cycle times. But the convergence is creating an information revolution which could be even more powerful than the industrial revolution in its ability to bring about massive changes in businesses and personal life styles.

Any revolution gives an opportunity for innovative entrepreneurs to build thriving businesses. Indian companies and entrepreneurs today have an unprecedented opportunity to become global players if they can innovate, work hard and execute. Obviously, informed investors backing the right entrepreneurs can also become very rich along with these companies.

Many Indian companies, particularly in the infotech sector are now working on listing on foreign stock exchanges. What are its implications?
The implications are positive. Listing in an exchange like NASDAQ gives prominence to these companies who can use the ADRs as a currency for acquisition or for creating stock options for employees working outside India. This also allows Indian companies to tap the rich Indian community in the US for capital. Within India, there is a concern that locals will lose the opportunity to invest in these stocks. I think that this is a short term problem and that the government will allow Indian mutual funds to invest in ADRs, there by giving Indian investors the same opportunity as international investors.

Infotech fund has maintained a balanced portfolio of top line and smaller lT stocks. Looking forward, what will your portfolio strategy be?
We will always maintain a balance of blue chips and smaller companies which have the potential of becoming tomorrow's bluechips. We think that this optimizes the risk return relationship. While larger companies give steady returns, smaller companies have delivered the extra returns that has contributed to infotech fund's performance. Also, larger cap stocks are more liquid which is useful when the fund has inflows and outflows, and during periods of negative sentiment when liquidity dries up.

Some of the recent IPOs of quality lT companies have provided handsome gains. Is it better for retail investors to participate in IPOs rather than invest in your infotech fund?
We believe it is better for investors to invest through our infotech fund. Most retail investors are not in a position to assess the quality of the issues and pricing as they have limited time and resources at their disposal. Even if they can distinguish good issues, the chances of getting allotment are low. Considering the above, they are better off participating through our fund, which often gets substantial allotments and provides good returns without the investors going through a lengthy process.

You have now declared a 60 per cent tax-free dividend in the dividend plan. That makes for a 100 per cent tax-free dividend in the current year. What will be your dividend strategy in future?
Our strategy would be to continue to distribute a good portion of our profits as dividend. The reasons are to reward our investors, pay out a cash dividend to those who need it, and provide a more tax efficient way for investors to cash in on their profits.

What was your thinking behind the 1 for 1 bonus?
We wanted to signal our confidence on the exciting future for the sector and infotech fund. Also, we wanted to lower the psychological barrier investors have to entering the fund at the high NAV, even if they believe the prospects to be bright.

Is there a difference between a high NAV and a low NAV fund with similar portfolios?
No, both are likely to perform equally. However, a high NAV fund is better since it can pay out much higher bonuses and tax-free dividends. It is also a sign of strength and expertise of the fund manager, whereas a low NAV fund is yet to be proven.

Any advice to investors?
The IT sector has excellent long term potential and will probably continue to outperform all other sectors over the next 3 to 5 years. However, like any equity investment, past performance is not necessarily an indication of the future and similar rates of return might not be achievable year after year. If investors keep this in mind when investing in this fund, we are confident they will be quite happy with the results.