NFO Analysis: ADITYA BIRLA SUN LIFE PSU EQUITY FUND
Aditya Birla Sun Life AMC, a subsidiary of Aditya Birla Capital, and investment manager to Aditya Birla Sun Life Mutual Fund has launched Aditya Birla Sun Life PSU Equity Fund, an open-ended equity scheme in line with the PSU theme. Predominantly, this fund focuses on investing in Public Sector Undertakings (PSUs) or companies, in which the government (State or Central) is a majority shareholder with at least 51 per cent shareholding. The fund is focused on long term growth and appreciation of capital. The NFO is closed for subscription and will open on December 23, 2019.
Objective and strategy: The investment objective of the scheme is to provide long term capital appreciation by investing in equity and equity-related instruments of PSUs. The idea behind PSU fund is to help investors gain from the growth of the economy, which depends upon these PSUs that dominate sectors that are core to the economy and its growth, such as utilities, oil & gas, metals & mining, infrastructure, defense, engineering, banking, etc.
One of the benefits of investing in the PSU fund is that those companies, in which they invest, are not prone to corporate governance issues. However, other factors hit the performance of these companies. The other trigger for these companies is the increasing focus on strategic divestment plans. It will also help unlock value for some of the PSUs.
Despite such pros for these PSU stocks, their performance has remained subdued and has not generated returns for their investors. The Nifty PSE index, which constitutes 20 companies from the PSU sector, has hugely underperformed the frontline index Nifty. The graph below shows the relative performance of the Nifty PSE against the Nifty 50 index.
Looking at the underperformance of the PSU index, we do not see any merit in subscribing to the NFO. Moreover, if you see other funds from the same space, they too do not give you much confidence in the theme. In the last 10 years, they have generated only single-digit returns, annually.
Nevertheless, if you are an aggressive investor, willing to take a risk, and believe in reversion to mean than you can take limited exposure to the fund.
Fund Manager: The new scheme will be managed by Mr. Mahesh Patil. The performance of the scheme will be benchmarked to the performance of the S&P BSE PSU TR Index.