Aditya Birla Sun Life Special Opportunities NFO: Should you invest?

Dhuraivel Gunasekaran

Remember the many mutual fund (MF) schemes that came with the ‘opportunities’ or ‘special situations’ tag? Most of those vanished over time. But Aditya Birla Sun Life mutual fund is bringing one such scheme back to life. It has just rolled out a new scheme called Aditya Birla Sun Life Special Opportunities (ABSO).

What is it about?

ABSO is a thematic equity fund. It aims to invest in companies that are most likely to benefit from certain specific special situations. These could be government policies or regulatory changes, some potential mergers that loom over the horizon and so on. Companies that fall in the special situations category are most likely available at prices which do not reflect their true potential or value. The fund manager takes advantage by investing in these companies and waits for the value to be unlocked and the share price to march upwards when that happens.

A Balasubramanian, managing director and chief executive officer, Aditya Birla Sun Life AMC Limited says “Markets have a way of offering special opportunities to stock pickers. In times of uncertainty, even the good companies get impacted due to some reason or the other. We are already in a special situation market due the unprecedented nature of the times we are in. We believe that the time is just right to benefit from many special opportunities that exist today in terms of new emerging trends, existing businesses adapting and evolving, and a big consolidation in many industries that is underway.”

What works

Funds that pick stocks based on special situations criteria typically buy shares before their full potential is realised. They are usually available at rock-bottom prices. On paper therefore, they can experience big gains when the companies’ values get unlocked. On the other hand, plain-vanilla diversified equity funds may also pick stocks that would have already appreciated quite a bit.

ABSO can also allocate up to 25 per cent of its corpus to foreign securities, of course, pertaining to special situations.

What doesn’t

A new scheme’s biggest drawback is the lack of a track record.

ABSO is a thematic fund; hence it comes with higher risk than a plain-vanilla equity scheme. It also depends on how well the fund manager identifies the special situations that companies could benefit from. For instance, if a company is banking on a regulatory change to get to the next level, then government policies can be uncertain.

Thematic schemes also have far fewer stocks than plain-vanilla funds. Concentration is not necessarily unfavourable, but it just increases your risk levels. ABSO will hold 35-40 stocks in its portfolio, which means a bit more diversified portfolio. But concentration in the top few holdings could result in lumpy returns during certain periods.

What should you do?

Securities and Exchange Board of India (SEBI) issued its new categorisation norms in 2017 and nudged the industry to consolidate its schemes. There were about 13 equity funds that were either called ‘opportunity’ or ‘special situations’, but followed almost the same path as ABSO is expected to. Many among that lot had concentrated sectoral exposures and churned frequently. Some had even done well over time. But many such funds were also inconsistent.

After SEBI’s re-categorisation mandate in mid-2018, barring Franklin India opportunities Fund, these schemes were either merged with others or changed their fundamental attributes. SEBI’s re-categorisation norms required all the fund houses to merge the schemes having overlapping portfolio holdings and just have one scheme per category.

Aditya Birla Sun Life AMC also had a fund with a similar theme called ‘Special Situations Fund,’ which aimed at taking advantage of special situations and contrarian investment styles. It was launched in January 2008 and was then merged with Aditya Birla Sun Life Equity Fund during the re-categorisation process in May 2018. The fund had delivered a return of 9.6 per cent during its lifespan.

ABSO is old wine in a new bottle. There are ample existing plain-vanilla diversified funds with track record and vintage you should be looking at. You can skip the ABSO NFO.

The new fund offer period closes on October 19, 2020, after which it becomes an open-ended scheme.