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Tuesday, June 16, 2009

Reliance Infrastructure Mutual Fund NFO - Analysis

Reliance Infrastructure Mutual FundReliance Mutual Fund, part of the Reliance Anil Dhirubhai Ambani group, has recently launched Reliance Infrastructure Fund. The open-ended equity fund will invest significantly in equity and equity-related instruments of companies engaged in infrastructure and infrastructure-related sectors such as transport, banks and financial institutions, energy, power and oil, metals and minerals, telecom and urban infrastructure.

“Undoubtedly, infrastructure is a key priority for India and we also hope a spurt of infrastructure spending in the economy on the back of the stable government and ease of project financing. Moreover, the valuation looks more attractive and the environment being stable with the new government settling in,”said Reliance Mutual Fund CEO Sundeep Sikka here.

Reliance Mutual Funds“The right time is now to invest in infrastructure and infrastructure-related firms, a sector which is likely to get a boost from the new government,” he added.The new fund offers two plans — Retail and Institutional. The minimum investment in the fund would be Rs. 5,000 and in multiples of Re. 1 thereafter for the Retail Plan and Rs. 5 crore and in multiples of Re 1 thereafter for the Institutional Plan.

Reliance Infrastructure Fund will invest at least 65 per cent of its assets in engineering, cement and power stocks as well as banks, whereas the balance will be invested in debt and money markets.

The scheme would provide investors opportunity to buy or sell units on an ongoing basis from not later than 30 days after the close of the New Fund Offer (NFO) on June 23.

The Reliance Infrastructure Mutual Fund will primarily invest in shares of infrastructure companies in India. It will have at least 65% of its assets invested in shares of infrastructure companies and the balance in debt instruments. It will also invest in derivative instruments for hedging and rebalancing purposes.

The fund will invest in infrastructure and infrastructure related companies, but there is one thing that you need to be aware of.

Banks, financial institutions and such, which lend to this sector, also come under this category and the mutual fund may invest in such companies also. This is not a good or bad thing - just something to keep in mind. Most investors don’t equate a financing company with infrastructure and so are sometimes surprised when they hear that their infrastructure mutual fund holds State Bank of India or some other such bank or finance company.

Here is a list of sectors that the fund may invest in (from their prospectus): At first glance it may occur to you that the Reliance mutual fund will invest most of its assets in Airport, then Banks, then Cement and so on (which is what I felt), but this is not true. This is just a list of indicative sectors and is not in any particular order.

Airports
Banks, Financial Institutions and Term Lending institutions.
Cement
Coal
Construction
Electrical and Electric Component
Engineering
Energy
Industry Capital Goods
Metals and Minerals
Ports
Power and Power equipment
Road and Railways
Telecom
Transportation
Urban Infrastructure
Mining
Aluminum
Reliance Infrastructure Fund Manager

Why to Consider Infrastructure Mutual Fund Now?
• Stable and stronger government - easy policy making
o The earlier coalition government had limited scope to thrust infrastructure related reforms given its constitution. However stability of the new government should ease policy making.

• Sharp government focus on infrastructure - better implementation
o The government has indicated that infrastructure is a crucial growth area and hence one can expect better project implementation than what was witnessed in the past. The UPA in its manifesto seeks to increase public investment into infrastructure and plans to increase power capacity by 12,000 - 15,000 MW per year.

• Key to reviving domestic growth
o The government has recognized that infrastructure spend might aid the economy to ride overthe ongoing slowdown while even insulating the economy from the adverse impact of the financial meltdown.

Mr. Sunil Singhania is the fund manager; he is a B.Com, CFA and has 11 years of experience in the capital markets. He also manages the Reliance Growth Fund, Reliance Equity Fund, Reliance Long Term Equity Fund, Reliance Diversified Power Sector Fund and Reliance Banking Fund.

Entry Load of Reliance Infrastructure Mutual Fund
Subscription below Rs. 2 Crores: 2.25%
Between Rs. 2 and 5 Crores: 1.25%
Above Rs. 5 Crores: Nil
Exit Load of Reliance Infrastructure Mutual Fund

1% if redeemed within a year of allotment
Nil if redeemed after a year of allotment
Nil if subscription is more than Rs. 5 crores
Minimum Application Amount for Retail Investors

The minimum investment needed is Rs.5000 and if you want to invest additional money then you must invest a minimum of Rs.1000.

Plans offered by Reliance Infrastructure Mutual Fund

There are two types of plans in this fund:
Growth Plan and Dividend Plan
The growth plan is meant for people who are not looking for regular dividend payouts from the mutual fund and the income from their funds will be reinvested in the fund. The Dividend plan on the other hand will give you dividend income (when the fund declares dividends). There is a dividend reinvestment plan also where the fund will reinvest your dividends to buy more units of the mutual fund.

How to Invest in the Reliance Infrastructure Mutual Fund NFO
If you have an online brokerage account like icicidirect.com, you can invest in this fund through them. You can also invest by filling out this form and submitting it in HDFC or Axis bank branches.

Tax Rates
The dividends are tax free in the hands of resident Indian investors. Similarly, there is no tax on long term capital gains. There is a 15% tax on short term capital gains of the scheme.
Detailed scheme information document

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