Birla Sun Life has filed a draft offer document with SEBI for its new mutual fund, — Birla Sun Life T â€“ 20 Equity Fund. This is a close ended equity mutual fund that will invest in stocks of top 20 growth companies. This fund will allocate 65 â€“ 100% of its net assets in equity and equity related instruments, and 0 â€“ 35% of its assets in debt and money market instruments. The duration of the scheme is 3 years, and there will be a dividend and growth option of it. The fund will charge expenses estimated up to 2.50% of average weekly net assets.
The idea behind launching the Birla T â€“ 20 mutual fund is that diversification beyond a certain point leads to diminishing returns without any corresponding benefits.
By having about 20 stocks or related instruments in its portfolio, the fund plans to minimize risk (by buying across sectors and market capitalizations), and at the same time leave scope for appreciation. To protect itself from concentration risk, the mutual fund will not invest more than 20% of its assets in just one sector.
Having a small number of funds also allows the fund manager to focus much better on every holding, as they donâ€™t have to look at a whole bunch of securities.
The norm is having 20 companies, but the prospectus says that the number of companies under the fund can go up to 25 at the discretion of the fund manager and also when the assets under management goes beyond 1000 crores
You are probably wondering how they will decide which 20 or 25 stocks will Birla Sun Life T â€“ 20 hold, and the answer to that is the fund manager will decide whether a particular stock makes the cut or not.
The factors that will be taken into account to make a decision are valuation, consistent past performance, future growth prospect, company management, and future expansion plans.
The minimum application amount for this fund is Rs. 5000. There is no entry and exit load, but investors arenâ€™t allowed to exit the mutual fund before the end of the expiry period.
Only time will tell how well the fund plays out and performance of the scheme largely depends on the stock picking skills of its fund manager â€“ Mr. Ankit Sancheti who is also the fund manager of Birla Sun Life Dividend Yield Plus, Birla Sun Life Basic Industries, Birla Sun Life Long Term Advantage Fund, and joint manager of Birla Sun Life Commodities Equity Fund.
A last note about risk of investing in the Birla Sun Life T â€“ 20 fund, — this is an equity oriented fund that will invest in a relatively lesser number of stocks. Equity markets are inherently risky, and investing in this fund means that you are exposing yourself to the normal risks of investing in shares, which can ultimately lead to significant erosion of capital.