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Principal PNB Long Term Equity Fund � Should you buy?

Published on Wed, Feb 21, 2007 at 12:55 | Source : Moneycontrol.com

Updated at Wed, Feb 21, 2007 at 13:14

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Principal PNB Asset Management has launched Principal PNB Long Term Equity Fund (PPLTEF), its first midcap fund in the equity-diversified category. It's a three-year close-ended scheme that will invest predominantly in mid and small cap stocks.

Investors should note that by definition, mid caps and small caps are riskier investments where the potential of return is also higher. Besides, experts believe that illiquidity, non-availability of SIP, and the very fact that being a new fund offer it has no track record are factors to be considered before investing in the scheme. (View - New Fund Offers open NOW)

No Performance Track Record:

Being an NFO, Principal PNB Long Term Equity Fund doesn't have a track record. Advisor Hemant Rustagi says, "For those investors who may like to include mid and small cap stocks in their portfolios as well as those who may like to enhance their exposure to these segments of the market, some of the existing open-ended funds with a proven track record may prove to be a better bet."

Commenting on the same R Srinivasan, Fund Manager of Principal PNB Long Term Equity Fund says, "Yes, it is true that this is Principal's first mid-cap fund in the normal equity basket but if you look at our portfolio of schemes, we have two mid-cap funds in the ELSS category and one small-cap fund in the balanced category. Our Tax Savings Fund is 75% mid-and-small-cap and the Personal Tax Saver is close to 85-90% mid-and-small-cap. The Balanced Child Benefit Fund is almost small-cap thanks to the size of the fund. Both the Tax Savings Fund (ranked in the Platinum category for the last two quarters by ET) and the Personal Tax Saver Fund have been in the 1st quartile across all ELSS schemes and also the mid-cap category across all funds. In terms of returns, the Tax Savings Fund is No.1 across the mid-cap space in terms of both 6m and 1yr returns." (Download Form - Principal PNB Long Term Equity Fund)

He adds, "Despite being only around 60% equity, the absolute returns of The Child Benefit Fund match the top quartile of 100% equity funds. Incidentally, in the category, the Fund is in the 1st quartile across 3m, 6m, 1yr, 2yrs and 3yrs. Since, this is the same team which will be managing this new Fund, I'm sure a comparison is called for".

Liquidity Concerns:

Experts believe that the close ended structure of fund implies a compromise for the investors in terms of liquidity. Also, if the performance of the scheme is not up to the mark, the investor will have to suffer his share of the unamortized expenses of the scheme, which will make redemptions expensive.

Srinivasan agrees to these generic concerns about illiquidity, but adds, "This is not a Fund for investors with a short-term perspective. We believe the mid-cap space offers excellent opportunities and we have generated significant alpha in our funds through original in-house research. The lock-in is necessitated because volatility in mid-caps tend to be very high and we don't want to be selling when it is a time to buy."

Non-availability of SIP:

Investment expert Sandeep Shanbhag says, "Being a close-ended scheme for the first three years, makes systematic investments (SIPs) in PPLTEF impossible, at least for the first three years."

Fund Manager agrees as he says, "I agree the non-availability of SIP is an issue but the structure of the fund does not permit us to offer that facility."

Conclusion:

Experts believe that this NFO does not offer anything new to the investors in terms of product differentiation and investors would be well advised to monitor the performance of PPLTEF over three years and then decide upon taking exposure.

- Reena Prince

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