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April 06, 2001
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Money > Mutual funds > Fund news April 06, 2001 |
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Tech funds face marginal redemptionAabhas Pandya The signs of trouble are evident for the family of technology funds, which have come under redemption pressure last month. Though outflows were not sizeable, it is an ominous indicator of things to come. That redemption occurred in March, when technology funds hit their nadir, reveals that investor patience is running out and they are undeterred by the abysmal net asset values. Clearly, unit holders see no prospect of a revival from current levels and thus, have exited at a steep loss of 60-70 per cent. At the same time, these could also include some investors, who entered at sub-par NAVs and therefore, their losses would be lower. "It is the other extreme where investors' craze for anything tech has now simply turned into utter disenchantment and hence, they are pulling out. When you are in a hopeless situation and in fact see your money losing more, you redeem to cut further losses. This is what happened in March," says the Delhi-head of a mutual fund. Today, these investors stand vindicated with technology funds losing more from their March-end levels. For instance, IL&FS eCOM has slipped further from Rs 3.06 to Rs 2.88 while K-Tech is down to Rs 3.35 from Rs 3.47. The worst hit due to the redemption is Sun F&C Emerging Technology. The fund had garnered an initial unit capital of Rs 2.570 billion (2.57 million units at Rs 10) in its IPO but the mopup has now started to wilt under repurchase pressure. Since January 2001, the unit capital has gone down from Rs 1940 million to Rs 1706.5 million on March 31, with most of the outflows in March. It's a grimmer picture since launch with the fund losing over one-third of its initial capital base. Worse, it's a double whammy for the fund. Redemption coupled with drop in NAV has led to a shrinkage in size - since January 2001, Sun F&C Emerging Technology has lost 45 per cent, dropping from Rs 1160 million to under Rs 650 million. It's the same sob story for other funds as well, including the two biggest tech schemes - Alliance New Millennium (ANM) and Prudential-ICICI Technology. While the duo have seen outflows this year, they are still better off from their IPO mop-up levels since they received steady inflows for most part of 2000 with a dropping NAV. For instance, ANM had collected a whopping Rs 5400 million at the peak of the ICE rally last year. While the current unit capital is higher at Rs 5960 million, its still lower from January figure of Rs 6175.4 million. The only contrarian in the pack is DSPML Tech.Com, which has seen net fresh inflows in the current calendar. "It's a wake up call for asset management companies. If investors are willing to exit despite sharp losses, it means redemption pressure could be more severe once markets see a turnaround and NAVs start to move up," says the CIO of a mutual fund. It may be recalled that technology funds were a rage in early 2000 as investors poured tonnes of money, hoping to see their investments double overnight! However, with the dream turning into a nightmare, the more disgruntled souls are now walking away with whatever little is left. However, the moot question is - is this time to redeem? Agreed, software funds are deep in the red but then, they were launched just a year ago. If you had invested in the sector with an aim of redeeming at a hefty gain within a short span and without knowing the pitfalls, you do not deserve any sympathy. Equities and especially technology is a highly volatile investment and demands a long-term commitment. While the sector is going through a bad patch across the globe, it continues to be a strong long-term performer. For, there is no denying the fact that the sector will continue to play a pivotal role in our day-to-day lives. Thus, the current slump provides an excellent opportunity to accumulate units at lower levels and average out your cost of investment. So, stay invested and invest for the long haul!
Source: Value Research
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