Similarly, during the same financial year, rising competitions are reflected in the surge of New Fund Offers (NFOs). According to the data from the Association of Mutual Funds in India or AMFI, out of the twenty fresh equity and hybrid schemes that have been floated in the initial four months of the current fiscal year FY25, as many as thirteen are sectoral/ thematic funds only. This has raised eyebrows among most industry players, Axis Asset Management Company (AMC) not excluded.
Such risks have been enumerated to the market by Axis AMC and they are connected with Active mutual funds which are not fundamentally predisposed to get trapped in one or few themes. Such considerations stem from the fact that such funds may at one time be out of favor thus; earning low returns hence low investor satisfaction.
Why Nelson’s narrow-themed Funds Might be Dangerous
On speaking more about themed investing Ashish Gupta, the CIO of Axis MF had the following two points to consider. In the case of Gupta, a thematic fund should be able to standardize a long-term amorphous concept to make it possible for the fund manager to churn out steady returns. Some of the sectoral or thematic funds may have restrictive stances that may affect the ability of the fund manager in the portfolio to respond to the factors in the emerging markets, and may not thus afford a sound investment.
In the case of Gupta, narrow-themed funds have a mammoth problem of not being able to be more flexible. “In other words, when an entire industry or market segment becomes disfavored, the margin of active management is thin and the only thing that active managers can do is underperform the index cheaper to investors,” said the speaker.
In the case of Axis AMC as a fund house, there is a breakdown of the thematic funds and how these are being managed.
On a similar note to what Gupta had to say, B Gop Kumar, the Managing Director and the Chief Executive Officer of Axis AMC said, “We are quite clear on how we wish to create thematic funds They must be long-term multi-decadal themes As a rule we stay clear of themes or sectors which are much more suited to passive funds. ”
An example of this is the Axis Consumption Fund which Axis AMC explains has longer duration returns expectations. The fund focuses on the consumption segment of the economy which has never underperformed during adverse periods in the business cycle; therefore it is a very valuable tool in the toolkit of any diversified investor.
It has been marketed by Axis Securities and it is the Axis Consumption Fund NFO.
The Axis Consumption Fund is proposed to be open for subscription on August 23 and may close for subscription on September 6, 2006. Consequently, in synergy with Axis AMC’s strategy of having long-only, non-leveraged, predominantly large-cap, mega-theme funds, the product will have a benchmark in the Nifty India Consumption Index.
Final Thoughts
Investors have become overly enthusiastic about narrow-themed active funds, which can only mean one thing: the structure of the mutual fund industry is shifting. The observations made by Axis AMC are useful in cementing the message that investing involves identifying large-sphere sustainable thoughts to wangle high and lasting returns and also to avoid a period of low performance.
The Axis Consumption Fund may well be quite attractive to those investors who are looking for well-diversified mutual fund schemes because, from what we have seen, it closely tracks a very stable and consistent sector.
