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India’s only power
sector mutual fund comes with a high-risk, high-return profile.
So, be cautious while investing in it
Frequent power cuts in your homes this summer may have frustrated
you, but that was also a subtle reminder of an opportunity
that came with it. It’s called Reliance Diversified
Power Sector Fund (RPSF). But if you’re wondering what
a mutual fund (MF) scheme has got to do with power cuts, then
read on.
Dark past. Industry estimates say that close
to 55 per cent of India’s population doesn’t have
access to power. As per the last Census, around 1,25,000 villages
lack electricity. Historically, the Indian power sector has
been plagued by unfriendly government policies, especially
red-tapism and bureaucracy in clearing power projects. The
result: severe power deficits and load shedding despite huge
demand.
An illuminating future. But, as the Indian
economy is poised to grow at 9-10 per cent a year, seamless
power supply will be required to support the country’s
infrastructure. And things have begun to change. The government
has slowly been getting into action by initiating reforms
in the power sector.
For instance, in 2003, it passed the Electricity Supply Act
that, among other things, facilitated the establishment of
power sector companies and their expansion. The government
also encouraged healthy competition between them. Loss-making
state electricity boards were given a fresh lease of life
and private sector companies were encouraged to expand their
capacities benefiting leading private sector power companies
like Tata Power and Reliance Energy.
Investing in India’s growing power sector companies
will yield good results in the long run. But if you do not
have the knack of picking stocks directly, then a sectoral
fund like RPSF bodes well.
What’s it about? The Indian MF industry’s only
power sector fund, RPSF is a sectoral equity fund that invests
in power and its allied sectors.
As the fund is not diversified across sectors, it comes with
a high-risk profile as its fortunes depend only on the power
sector. Therefore, RPSF is meant for you only if you like
taking risks.
RPSF invests in power generation, transmission and equipment
manufacturing companies. Being a sectoral fund, RPSF holds
around 20 stocks. The fund manager follows a buy-and-hold
philosophy and does not churn its portfolio frequently. RPSF
manages its cash positions aggressively in search for any
opportunities to buy. RPSF has tasted success in several power
scrips, most notably in Siemens, Crompton Greaves and Jaiprakash
Associates. RPSF’s growing corpus (Rs 1,176.3 crore
in June 2007, up from Rs 552.2 crore in January 2006) does
not bother the fund manager.
Returns. RPSF has delivered strong returns since inception
(April 2004; 60 per cent as against 34.3 per cent by its benchmark
India Power index) on the back of the surge in infrastructure
and power sectors. As on 29 June 2007, RPSF returned 88.9
and 65.7 per cent in the past one and three years respectively,
as against 56.3 and 48.7 per cent by its benchmark index.
Besides, Reliance MF enjoys a good track record across its
equity and debt schemes. As RPSF is a sectoral fund, expect
the fund to be more volatile than a plan-vanilla diversified
equity fund.
Against the 10th 5-year plan’s (2002-07) requirement
projections of around 1,00,000 MW of electricity in the country,
industry estimates claim that the power sector is on the right
track. And in the thick of the action, spotting opportunities
is RPSF with the potential to give you high returns, albeit
with a much higher risk. Power cuts don’t look all that
bad now, do they?
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