With the investor appetite for diversified and sectoral equity funds on a low ebb after the sharp fall in the market, asset management companies are now focussing on safer and less volatile investment alternatives. In fact, the open-end debt fund from ANZ Grindlays is the first medium-term debt plan for the current calendar after a flurry of technology fund launches earlier this year. The seven technology funds had mobilised around Rs 2200 crore between them. However, in the ICE meltdown that rocked the bourses, all the technology funds have gone below their offer price of Rs 10. Besides, the category of diversified equity and balanced funds suffered extensive erosion since most of the funds were overexposed to ICE stocks.

ANZ Grindlays Super Saver Income Fund
With its aim to become a specialised debt fund house, ANZ Grindlays launched its maiden fund, ANZ Grindlays Super Saver Income Fund on June 13. This is the second AMC in the country to be sponsored by a foreign bank, the first one being ING AMC, which launched its operations last year. The debt fund is available without any load basis during the initial offer with the initial issue expenses being borne by the AMC. The fund offers dividend and growth plans to investors with the option to re-invest dividend. The fund also offers systematic investment and withdrawal facility. The key USP of the fund will be its facilitation to instantly credit the redemption proceeds in case of ANZ Grindlays account holders.

The debt fund has hit the market when interest rates are beginning to move up with hardening of yields. This will facilitate the fund's entry into debt instruments at attractive prices since bond prices move inversely to interest rates. Rajiv Anand, the fund manager is a chartered accountant and has been in the fixed income market for nine years in the treasuries of HSBC and ANZ Grindlays.

The fund manager plans to employ a 3-D factor process for managing the debt fund. Under the 3- D process, the factors that drive interest rates are broken into three broad categories of economic fundamentals, market psychology and market valuations.

``Each of the 3 dimensions is represented by factors that have a bearing on interest rates either in the short or medium term. These factors are then objectively assessed. A weekly checklist of the various factors assigns a bullish or bearish assessment to the factors that drive the direction of interest rates,'' elaborates Anand. ``The overall assessment of the various factors translates into a duration number in months, around which the portfolio is constructed,'' he adds.

The Franklin Offers
Templeton has launched two open-end funds - Franklin India Index Fund and Franklin India Balanced Fund, which open for initial subscription on June 26.

Franklin India Index Fund (FIIF): FIIF will be the fourth open-ended passive index fund to hit the Indian mutual fund market. FIIF will track the S&P CNX Nifty or NSE-50, which means that the fund will invest in all stocks, which make up the index with approximately the same weightage. This will make the fund truly diversified, since NSE-50 is spread across 23 sectors. Based on the prices of June 14, the ICE sector has the maximum weightage in NSE-50 at 29.63 per cent followed by FMCG at 22.07 per cent.

Index funds are ideal vehicle for passive and diversified exposure in equities. These funds are ideally suited for investors who want a slice of the action in equity markets but do not want to expose themselves to the vagaries of a particular sector or a few sectors or to the whims and fancies of the fund manager. For instance, in the last three months, diversified equity funds have lost an average 31 per cent. On the other hand, the two index funds from UTI and IDBI have lost only 19.76 per cent and 16.43 per cent, respectively against the Sensex decline of 18.6 per cent.

With the launch of FIIF, the number of index funds will go to four with two funds, each tracking BSE Sensex and NSE-50. The three index funds have a corpus of around Rs 375 crore as on May 31, 2000. Besides diversification, passive index funds have relatively low operating costs since the portfolio is not actively managed and hence, has low research and advisory charges.

This also brings down the transaction and trading costs since the fund is not attempting to beat the benchmark but only replicating it. However, the fund will still have a tracking error due to annual expenses and due to the fluctuation in stock prices on day-to-day basis. Franklin India Balanced Fund (FIBF).

After the sharp fall in net asset values of balanced funds due to concentrated equity portfolios, AMCs are now driving home the virtue of a truly balanced fund. No wonder, Templeton calls FIBF a 'real balanced choice' to drive home the point. A balanced fund is suited for those investors, who are looking for long-term capital appreciation with equities coupled with the stability of debt instruments. However, these investors are not prepared at committing their investment to 100 per cent equity funds.

FIBF aims at striking the right balance between equity and debt with the maximum exposure to either class not exceeding 60 per cent. While most balanced funds have maintained around 60 per cent exposure to equities, their over exposure to ICE stocks has lead to a sharp fall in NAVs in the last three months. The average fall in the balanced fund category has been over 20 per cent for three months ended May 31, 2000. Hence, FIBF has its task cut out and it will have to strive for a diversified equity portfolio to withstand the meltdown on the bourses.

Both the Templeton funds will charge an entry load of 1 per cent in the initial offer. This means that for every Rs. 100 invested by the investor, Rs 99 will be available to the scheme for investments. Both the funds offer dividend option and systematic investment withdrawal and transfer plans to investors. The minimum investment in the both the funds is Rs 2,000.

The index fund will carry a 30-day lock-in on all subscriptions. Since the scheme has to closely track the index, it will keep only 5 per cent of its net assets in cash. Also, the settlement cycle is completed in approximately two weeks time and the fund will receive cash on sale of securities only after a fortnight. Hence, the AMC has imposed a lock-in of 30 days.

-- Value Research