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ICICI Pru Value Fund Series 1 : Targeting Wealth via Value Approach
Fri, Oct 18, 2013
Source : Shoaib Zaman, Citrus Interactive

ICICI Prudential AMC is coming up with three-year close-ended equity fund, this is the first in the series. The New Fund Offer (NFO) starts on October 18, 2013 to October 28, 2013. The fund’s benchmark is S&P BSE 500.

There are a few valid questions to ask before we take a view on the fund. “What is Value Investing?” Value Investing is about investing in a stock that is available at a discounted price relative to its intrinsic value and holding it till the time that the market price comes close to its real worth. "Will the investment idea work?" a question that any investor would ask in the background of returns they have received in the last three years. The AMC has given many reasons supporting its thesis. It is clearly of the view that investors are under invested in the equities at this point of time.

It has also given a graph since 1991 till 2013, marking the points when elections took place. In this time frame of 22 years, six elections have taken place and interestingly, with the exception of 1996 and 1998 (both years when the government did not last its full 5 year term) the stock market has always rallied after election in a span of 1 to 2 year.

S&P BSE Sensex and Elections

Election Year

Date

Sensex

20% Appreciation

50% Appreciation

70% Appreciation

1991

21-Jun-91

1361.7

Within 1 year

Within 1 year

Within 1 year

1996

9-May-96

3694.3

Within 2 years

The bull phase that started in 1991 ended in 1997.

1998

3-Mar-98

3646

Within 2 years

Within 2 years

 

1999

7-Oct-99

4963.1

Within 1 year

 

 

2004

13-May-04

5399.5

Within 1 year

Within 2 years

Within 2 years

2009

16-May-09

12173.4

Within 1 year

Within 2 years

Within 2 years

Investment process

Since the fund is a close-ended, the Fund Managers will not have to worry about the inflow-outflow of investment. However, a lot would also depend on when this scheme is open for subscription and the maturity period from the date.

The fund is not bound by any market capitalisation or theme or sector for choosing stocks.

The investment approach of the fund allows the Fund Manager to pick stocks based on various metrics of valuations like PE, PB, ROCE, etc. The Fund Manager also has the freedom to invest in cyclical stocks, contra play, or growth at reasonable valuation, or by using any other valuation method that the Fund Managers seems fit. In short all the Fund Manager needs to keep an eye on is to make profit for its investors. 

The fund management team holds excellent track record. Sankaran Naren and Mittul Kalawadia will be the Fund Managers of the scheme. Naren has been in the financial industry for over two decades and Kalawadia has been working with the fund house for the past seven years.

The fund has only two options -- the dividend payout option and dividend transfer plan (DTP). Under DTP, the dividend declared will be automatically invested into any open-ended scheme (Target Scheme) of the Fund. There are no growth options, as the management believes that any appreciation should be returned to the investors so that they can reinvest or use it at per their wishes. This is a very sensible way to structure a closed ended fund, where investors don’t have an option to book partial profits at attractive levels.

View

The fund managers have a strong track record and their thesis does have some appeal. Even though the Sensex is in the range of 20,000 points, the concerns are more in the short to medium term horizon and not so much for a 3 year period. By its design the fund is equity diversified fund with a three year lock-in. Without a doubt the risk level would be high with this product. For investors who have less than 40% exposure in equity despite having an investment horizon of over five years or more, they should look at taking exposure to this fund.

 
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