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Infotech Funds: Hottest Buy

Dhirendra Kumar

Despite high valuations, the technology sector is too hot not to invest in. There is still a strong case for investment in technology stocks to maximise returns and minimise risk of missing out. Even after several years of rising stock prices and the roaring bull market for technology stocks, optimism prevails. It is very likely to continue into the foreseeable future: thus investors who want to outperform the overall market should consider including technology stocks in their portfolios.

The key reason for the optimism is that the basis of valuation of an infotech stock cannot be with all numbers in the rear-view mirror. Instead of stock prices relative to past earnings and price performance, investors are increasingly getting focussed on great companies capitalising on powerful trends. Despite the technology stocks recent strides, the sector's long-term prospects remain outstanding. If the pundits are right, there is still room for plenty of computing resources and India will not only sustain its role but also enlarge its contribution to global computing needs.

By the looks of it the world will increasingly be shopping, socialising and perhaps living online. But when investing in the sector, my advise is that you look beyond the mania and evaluate infotech stocks and the funds that own them the same way you would any investment - thoroughly, and from the perspective of a long-term owner. Here's what you need to think about before hitting the "Start" button.

The Buy Checklist - Whether you're a stock or a fund investor, do some self-examination prior to investing in this sector. Answer these two questions:

How much technology exposure do I already have? Technology is a wonderful long-term story, but it's certainly not a new one. Many mutual-fund managers currently indulge in tech stocks. You may already have plenty of exposure to technology without even knowing it. Most growth funds carry large tech weightings: Most of the outstanding performers have Infosys Technologies as their top holding today. The typical large-cap growth fund keeps more of its assets in tech stocks--32 per cent currently--than any other sector of the market. So if you own growth funds, chances are you own lots of technology stocks.

2. Can you handle the ups and downs? Rapid changes are the rule rather than the exception for most technology companies: With rapidly changing technologies, the top-of-the-line infotech service provider has to be on his toes all the time. Because technology heroes and zeroes trade places very quickly, their stock prices are volatile.

Watch for Volatility: Infotech stocks hitting circuit breakers everyday is a matter of routine now. Even an Infotech fund - a diversified portfolio of infotech stocks-- is not insulated from the wild volatility. Consider Kothari Pioneer Infotech Fund, which in its dealing history of 318 days has gained by more than 2 per cent on 75 occasions in a day than its previous days NAV and lost more than 2 per cent on 35 days. And the maximum gain on a day was 17.57 per cent (1/3/99) and the maximum drop in day was 6.07 per cent (26/4/99). Tech investing isn't for you if you can't stand it, when your fund or stock's price slides by a percentage point in a single day.

One Day Zoom
Fund	Nav as on
	6-Oct	7-Oct	Chg (%)
Magnum IT Fund	18.05	19.26	6.70
Birla Advantage	38.50	40.91	6.26
Magnum Multiplier Plus	20.18	21.40	6.05
Apple Goldshare	23.95	25.39	6.01
Tata Core	14.36	15.22	5.99
Pru ICICI Growth Plan	20.30	21.51	5.96
KP Pharma Fund	13.73	14.54	5.90
Magnum Multiplier	21.61	22.87	5.83
Canexpo	18.75	19.84	5.81
Tata Twin Option Fund (E)	17.89	18.93	5.81
Tata Life Sciences & Tech Fund	12.49	13.19	5.60
Apple Platinum	16.31	17.2	5.46
K 30 Unit Scheme	18.70	19.72	5.45
Alliance Equity Fund	25.86	27.27	5.45
Magnum Pharma Fund	13.43	14.16	5.44
DSPML Equity Fund	20.57	21.68	5.40
Chola Freedom Growth	15.14 Cr	15.93	5.22
KP Prima Plus	21.18	22.28	5.19
KP Bluechip	38.44	40.36	4.99
KP Infotech	37.50	39.36	4.96
Dhanvikas (1)	10.53	11.05	4.94
Reliance Growth	24.49	25.67	4.82
ITC Top 200	23.10	24.21	4.81
Sun F&C Value Fund	21.47	22.5	4.80
Canbonus	13.05	13.67	4.75
KP FMCG Fund	12.65	13.25	4.74
KP Prima	25.00	26.1	4.40
Reliance Vision	19.86	20.73	4.38
Templeton IGF	12.06	12.58	4.31
Sundaram Growth Fund	15.69	16.35	4.21
Zurich India Equity	18.90	19.67	4.07
GIC Fortune '94	7.76	8.07	3.99
Dhansamriddhi	4.60	4.78	3.91
Magnum Contra Fund	12.55	13.04	3.90
Pru ICICI FMCG Fund	11.78	12.22	3.74
GIC Growth Plus II	17.61	18.21	3.41
GIC D'MAT	11.66	12.04	3.26
Magnum FMCG Fund	12.04	12.37	2.74
Boinanza Exclusive	9.12	9.26	1.54

Choosing a Tech Fund: Maybe individual infotech stock is not your thing. You would rather pay a professional money manager to keep abreast of trends in the industry for you. Or holding only one or two tech stocks that may or may not be around tomorrow is too risky for you; you'd rather own an entire collection of them to hedge your bets. An infotech fund may be the right entry ticket. You can ride the technology boat with adequate diversification with a small entry ticket. There are three clearly defined Software Funds available today - the blockbuster Kothari Pioneer Infotech Fund, Magnum Infotech and UTI's Software Fund.

Kothari Pioneer Infotech Fund: The first infotech fund went ballistic since its launch in August 1998. As on December 23, 1999 the fund is up 530 per cent since launch. In its dividend plan, the fund declared a 40 per cent tax-free maiden dividend in October 1999. The fund has a highly concentrated portfolio spread over 21 infotech stocks. The top 6 stocks account for 54 percent of the portfolio. The fund's portfolio has largely remained static with change in portfolio weightage. The fund with its sectoral focus and concentration has been very volatile in its brief history. Now the fund has declared a dividend of 60 per cent, which will be tax free to all investors as on January 12, 2000. Besides the dividend, the fund has also announced a 1:1 bonus. For short-term investors in the fund, this will entail a cost of 1.5 per cent exit load besides assuming the market risk and an entry load of 2 per cent.

KP Infotech (30/11/99)	% Net Assets
Mastek	18.02
Satyam Computer Services	15.04
Infosys Technologies	11.76
N I I T	8.59
Digital Equipment (India)	5.89
Ramco Industries	4.89
B F L Software	4.16
Hughes Software	3.74
Wipro	3.64
Software Solution Integrated	3.55

Magnum Infotech Fund: Magnum Infotech launched in July 1999 is up 214 per cent since its launch. The fund is largely focussed on small infotech stocks has 52 per cent of its portfolio in 7 stocks. The fund carries no entry load. Besides, the exit load is also waived for investment of over one year. However, the fund charges a 1 per cent load for exit within six month and 0.5 per cent for redemption between six months to one year.

Magnum IT Fund (1/12/99)	% Net Assets
Mastek	11.61
Visualsoft (India)	10.66
Infosys Technologies	6.51
Moser Baer (India)	6.12
Sonata Software	6.12
Software Solution Integrated	5.70
Infotech Enterprises	5.56

UTIs Software Fund: UTI's Software Fund was launched in June 1999 is and primarily invests in information technology sector. The fund is up 100 per cent in a brief period since its launch. The funds portfolio is spread over 12 stocks. The fund has also corrected its pricing mechanism, and switched to forward pricing. The fund charges a 2 per cent exit load.

UTI Software (30/9/99)	% Net Assets
N I I T	22.12
Infosys Technologies	21.63
Satyam Computer Services	17.18
Ramco Industries	5.67
Mastek	5.51
H C L Infosystems	4.87

Once you've added a tech fund to your portfolio, resist the urge to check it hourly, or sell when its NAV sheds a few percentage points in a single day. If you believe in technology's long-term prospects, you should be a long-term investor in the sector.

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