Moving in and out of thematic funds can be expensive

Tata Mutual Fund's 'own a piece of India' offering is suitable for informed investors. Retail investors can look at well-diversified equity schemes

Tata Mutual Fund has launched new funds under an umbrella theme called ‘own a piece of India’ to let investors participate in the India growth story. The bouquet includes thematic or sector-oriented funds, of which five are new offers. One is an existing scheme.

The new funds include Tata Banking and Financial Services Fund; Tata India Consumer Fund; Tata Digital India Fund; Tata India Pharma & Healthcare Fund and Tata Resources & Energy Fund. These are bench-marked against the BSE’s and National Stock Exchange’s indices. The existing scheme, which is part of the offering, is Tata Infrastructure Fund.

It is up to investors to customise their preference; they can opt for either one fund or more. The investments can be made in multiple schemes by filling up just one form and giving one cheque. The funds opened for subscription on December 4 and the new fund offering (NFO) closes on December 18.

While it’s a unique concept, advisors and analysts feel retail investors are better off if they go for a diversified equity fund with a track record. “Most of the sectors and themes offered in these are already part of a diversified fund’s portfolio, be it banking, pharma, consumer goods or information technology,” says Vidya Bala, head of mutual fund research at FundsIndia.

In these funds, an investor is supposed to decide the allocation to each theme/sector. It’s not always possible for retail investors to take such calls. Only an informed investor, or an individual guided by an advisor, can take calls on sectors and industries. In a diversified fund, the fund manager does it on behalf of the investors. At present, cyclical industries such as metals are not doing well. If commodity cycle turns and such sectors start doing well, a diversified fund manager can shift easily to such sectors that are not part of the offering by Tata Mutual Fund. Bala points out that each shift might also entail tax liability and exit loads in ‘own a piece of India’. In a diversified fund, an investor does not need to worry about it.

Hemant Rustagi, chief executive of Wiseinvest Advisors, says even before a person takes a call on sector-based NFOs, they should first see if there’s a need for such funds in their portfolio, as they are risky and meant for aggressive investors. That’s why only a small portion of the equity portfolio is allocated to them. Experts also say that usually, fund houses have expertise in different sectors. Without a proven track record, one cannot be sure if Tata Mutual Fund can manage all sectors equally well.

Another highlight of the new funds is they follow a multi-manager approach with one lead and two co-fund managers. In the presentation, the fund house says this will limit the risk associated with decision-making by minimising the bias of a single fund manager. Bala says many fund houses, including Franklin Templeton Mutual Fund and Birla Sun Life Mutual Fund, follow such a method.

Another drawback some investors might face is the minimum investment amount for each scheme, which is Rs 5,000. This means, a person will need to invest a minimum of Rs 30,000 to take exposure to all the funds.