Baroda Pioneer PSU Equity Fund (BPPEF) is mandated as a thematic fund, betting on companies in the PSU segment.

Summary

Type	Open-ended equity scheme	Benchmark Index	BSE PSU Index
Min. Investment	Rs 5,000	Face Value	Rs 10
Entry Load	Nil	Exit Load *	1.0%
Issue Opens	September 13, 2010	Issue Closes	September 24, 2010

*An exit load of 1.0%, will be levied if redeemed/switched on or before 365 days from the date of allotment of units. After which exit load is nil.

Investment Objective*

The primary investment objective of the scheme is to provide investors with opportunity for long-term growth in capital along with the liquidity of an open-ended scheme through an active management of investments in a diversified basket of equity stocks of domestic Public Sector Undertakings.

*Source: Scheme Information Document

Is this fund for you?

Public Sector Undertaking (PSU) refers to a company where the Central / State Government, has majority shareholding (51%) or management control or has powers to appoint majority of directors. With the Government proposing to dilute the promoter’s holdings in PSUs, many PSUs will be available for disinvestment in the years to come.

 

Hence, perceiving the benefit carried by disinvestment of PSUs, many mutual funds have geared up (by launching a PSU dedicated funds) to take advantage of the opportunities arising from the proposed disinvestment of PSUs. It was initiated by Religare Mutual Fund through the launch of Religare PSU Equity Fund, followed by Sundaram Mutual Fund (Sundaram BNP Paribas Select Thematic Funds PSU Opportunities), SBI Mutual Fund (SBI PSU Fund), and now the latest addition to this breed of PSU Funds is Baroda Pioneer PSU Equity Fund.

 

As the name suggests, Baroda Pioneer PSU Equity Fund (BPPEF) is a thematic fund focusing on investment in public sector enterprises. The launch of BPPEF is on the conviction that, PSUs are likely to emerge as more robust & vibrant players in different parts of the economy, as the reform process progresses over the next five to ten years in India. The fund also believes that, despite the large scale privatisation across the world, public enterprises still remain an important aspect of the economic activity in varying degrees.

 

However, this conviction in our opinion will pay returns only when the underlying theme of PSUs does well. This makes the fund’s fortune very closely linked to the fortune of the PSU theme, which in turn would depend upon plans and policies framed by the Government(s) while disinvesting PSUs. Moreover when it comes to stock picking, the fund manager will be left to a limited stock selection universe, which may make risk investors to higher portfolio concentration. Also since PSUs have limited presence in sectors such as pharma, IT, FMCG, and automobiles, the fund’s sector portfolio may also become concentrated towards few sectors.

 

Thus by investing in BPPEF, the essence of investing in mutual funds i.e. diversification, would be lost, thereby making one’s investment a high risk-high return investment proposition.

Portfolio Strategy

Being a thematic fund focusing on the opportunities in the PSU sector, the fund will follow a top-down approach, while selecting stocks in the PSU segment. And while undertaking its stock picking, BPPEF would take into consideration the following:

 

• Fundamentals of the business
• Market capitalisation
• Industry structure
• Quality of management
• Sensitivity to economic factors
• Financial strength of the company and the key earning drivers

 

However by focusing on the said theme, the fund’s stock selection universe would get limited to PSU companies, thus making the fund’s stock portfolio concentrated. Moreover, while the fund endeavours to maintain a “buy and hold” strategy, this may not really refrain the fund from selling the stocks when valuations look over-stretched. Hence, in such a situation BPPEF may see a high portfolio churning resulting in high portfolio turnover.

 

The fund is mandated to allocate its assets as under:

Instruments	Allocation Range (% to Total Assets)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity and equity related securities covered under the universe of Public Sector Undertakings, including Derivatives*	65	100	High
Debt and money market securities	0	35	Low to Medium

*Investment in derivatives may be made upto 50% of the net assets of the scheme

 

Also, since PSUs have limited presence in sectors such as pharma, IT, FMCG, and automobiles, the fund’s sector portfolio may also become concentrated towards few sectors.

Fund Manager Profile

Mr. Dipak Acharya a senior fund manager at Baroda Pioneer Mutual Fund. He holds an M.Com, AICWA and CAIIB degree, and has vast experience in capital markets. Prior to joining the asset management division, he worked for over 10 years in the Treasury as well as the Credit departments of Bank of Baroda.

 

At present, Mr. Acharya is also a fund manager for Baroda Pioneer ELSS’96, Baroda Pioneer Growth Fund, Baroda Pioneer Balance Fund and Baroda Pioneer Infrastructure Fund.

Fund Outlook

BPPEF is positioned as a thematic fund, which will have its penchant towards stocks in the PSU segment. Hence, the fund’s fortune will be closely linked to the opportunities provided by PSUs. Moreover, any changes in the Governments PSU disinvestment plan will have prime impact on the fund’s performance. This makes BPPEF a high risk-high return investment proposition.

 

Being a thematic fund, BPPEF is likely to hold a concentrated stock and sectoral portfolio, and hence could be a candidate for above average volatility. Therefore, investors can expect sharp swings (both on the upside and downside) to be a common feature in the fund’s performance. The process of divestment of Government stakes will tend to improve price discovery, valuation and liquidity for such stocks. However, the opportunities in this segment may be limited.

 

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