IDBI Mutual Fund which was set up last year plans to launch its first diversified equity mutual fund

Moneylife Digital Team

Currently IDBI Mutual Fund just has two index funds benchmarked against the Nifty index and the Nifty Junior index. According to the offer document filed with the Securities and Exchange Board of India (SEBI), the new scheme would be an open ended equity scheme—IDBI India Top 100 Equity fund. As the name suggests the scheme would invest in the top 100 companies, restricted to those which are present on the CNX 100 index. The performance of the fund will be benchmarked against this index. Surprisingly, IDFC has kept an option to invest as much as 30% in debt and money market instruments, which is quite high considering it is an equity fund.

Is this fund worth investing in? Well, IDBI does not have a proven track record in equity funds yet. The fund manager of the scheme, V Balasubramanian, comes in with 30 years of financial experience and 14 years in the mutual fund industry. Hopefully his experience should justify paying 2.5% by the investors.

There are many similar funds of other fund companies. There is DSP Blackrock Top 100 Equity Fund, LIC Nomura MF Top 100 and UTI Top 100, apart from top performers like HDFC Top 200. On analysing the performance of these funds over the last 1-year, 3-year and 5-year period, we find that LIC has performed the worst. We have written about the poor quality of its fund management earlier, as well. Launched in 2008, it was unable to beat the benchmark in the 1-year and 3-year period. DSP Blackrock was able to beat its benchmark over all the three periods. UTI marginally underperformed its benchmark in the 5-year period.

Therefore if you are planning to invest in an equity scheme which predominantly invests in large caps, we would suggest checking out the track record of other equity diversified schemes as well and select a fund with a proven track record. Fortunately, the timing is right. The market is reasonably valued and an investment now will be profitable over 3-5 years. But that can be said about many other schemes, as well.