Reliance MF to launch mega fund

With minimum ticket size of Rs 1 cr, infra debt fund targets ultra-rich, institutions

Tired of investing in mutual funds at Rs 10 per unit? What about buying units of Rs 10 lakh each? Reliance Mutual Fund is planning to launch a mammoth infrastructure debt fund (IDF), each unit of which would be priced Rs 10 lakh.

Targeted primarily at the long-term funds of super-rich individuals, foreign institutional investors, local institutions and corporate investors, the scheme will not accept investments below Rs 1 crore.

Reliance filed the offer document for the scheme with the Securities and Exchange Board of India (Sebi) last week. The close-ended scheme will invest in debt of companies in sectors such as transport, energy, water, sanitation, communication and social infrastructure, including education. It also has the flexibility to invest up to 10 per cent of its corpus in the equity of companies in these sectors.

‘MOTHER OF ALL FUNDS’

• Reliance files for debt fund 
• Each unit to be priced Rs 10 lakh
• Fund targets long-term money from the rich and institutions
• NRIs, FIIs, QFIs can invest
• Good appetite in the market for infra debt 
• Fund faces competition from tax-free infra bonds 

“We are excited about the product. The infra debt fund has the potential to be a big product category in itself in the coming years. It will benefit both the mutual fund industry and companies engaged in the development of infrastructure,” said Sundeep Sikka, chief executive, Reliance Mutual Fund. It would help in the objective of channelising the country’s household savings into productive assets, he added.

While the fund house is tight-lipped about the targeted corpus, similar long-term infrastructure debt funds launched through the non-banking finance company (NBFC) route earlier this year have said they would raise $1.5-2 billion (about Rs 8,000-11,000 crore). Even if Reliance’s IDF matches its counterparts taking the NBFC route, it is likely to be the largest new fund offer (NFO) in the industry’s history.

Reliance has a record of marketing its NFOs well. Reliance Natural Resources Fund, which collected Rs 5,660 crore in January 2008, remains the biggest NFO till date. Even during the downturn, when most struggled to collect a few hundred crores in their NFOs, the fund house collected Rs 2,350 crore in its Reliance Infrastructure Fund in July 2009.

Surjeet Mishra, national head-mutual funds, Bajaj Capital, a national distributor, said, “There is a lot of interest in this kind of focused investment. Since infrastructure stocks are doing badly, it is not easy for the companies in this sector to raise equity now. The companies are ready to raise debt at a much higher rate.”

The infrastructure debt fund is a new product structured by the government, the Reserve Bank and the Sebi to facilitate long-term debt financing for infrastructure. It was first announced by the government in Budget 2011.

Other fund houses such as SBI Mutual Fund and IDFC Mutual Fund are planning to launch similar products. Hemant Rustagi, chief executive, Wiseinvest Advisors, says it will be a good addition to the product suite of fund houses. “You don’t have any product in the long-term debt segment. This will be the first. Being a close-ended product, managing it will not be difficult.”

Advisors say investors will compare the product with others such as tax-free infrastructure bonds, which offered a tax-free return of 8-8.25 per cent last fiscal. IDFs will be taxed like debt mutual funds. “This is not for the masses. You have to sell it to informed investors, who will compare it with competing products. If I am going to hold it for the long term, I would want to know what return I’ll get,” says Rustagi. Sebi rules do not allow mutual funds to indicate or assure returns from market-linked investments.