In a move that is fast turning into a trend, Prudential-ICICI AMC plans to launch a new IT fund, which will invest exclusively in software/hardware, Internet, telecom, media, life sciences, and research and development.

Prudential-ICICI's move is in line with the trend prevailing in the Indian mutual fund (MF) industry. More and more MFs are launching sector specific funds, particularly IT-related, to tap the enormous potential of the Indian software sector. While cyclicals (cement, commercial vehicles, metals) have also witnessed significant growth, the kind of returns that the software sector has given investors in the past is way above that of any other sector. So while cyclicals have grown, the software sector has grown faster.

Indian fund managers are of the opinion that the rich valuations of the software sector are justified given the enormous potential of the sector over the next 4-5 years. They expect the sector to witness growth in excess of 50% in that period. That is the reason why fund managers are launching IT-specific funds in a big way and want to grab a slice of the IT pie.

Some MFs (SBI, UTI, Kothari Pioneer) that have launched IT-related funds have seen enormous appreciation. Kothari Pioneer IT Fund has declared 100% dividend (in FY99) in addition to a 1:1 bonus. SBI and UTI are also witnessing large inflows as investors are flocking to invest in IT-related investments, both stocks as well as MFs. Given the astronomical prices, software stocks are beyond the reach of retail investors. So the next best thing for investors to do is to invest in MFs that invest in software.

In addition to Prudential-ICICI MF, others like Birla MF, Tata MF, IL&FS MF, Alliance Capital MF are also launching IT-specific funds.

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