Apr 15, 2008

Mutual Funds NFO- ICICI Prudential Focused Equity Fund.

ICICI Prudential Mutual Fund has launched an open-ended equity scheme, ICICI Prudential Focused Equity Fund.

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Investment Objective

Seeks to generate long-term capital appreciation and income distribution to unit holders from a portfolio that is invested in equity and equity related securities of about 20 companies belonging to the large cap domain and the balance in debt securities and money market instruments. The Fund Manager will always select stocks for investment from among Top 200 stocks in terms of market capitalization on the National Stock Exchange of India Ltd. If the total assets under management under this scheme goes above Rs.1000 crores the Fund Manager reserves the right to increase the number of companies to more than 20.

Investment Strategy

  • This fund aims to invest in the companies which it believes are, Leaders in the industry in which they operate, have rapid growth potential over the next 3 to 5 years and have superior proven management.
  • It aims to generate Alpha from being over weight on certain high conviction picks.
  • It will not have any bias in terms of theme / sectors. It has the flexibility to take higher exposure to one theme or sector to maximize on the opportunities. But it will keep an eye on the limit on higher exposure.
  • It will follow bottom up stock picking. This will be post required analysis, meeting and research about the respective company.

Why focused Large Caps?

  • Large Caps have advantage of their size. They have easy access to credit, healthy cash reserves and staying power to withstand tougher times.
  • These companies generally have a diversified presence in domestic and international markets and have various business under one umbrella, reducing the risk.
  • These stocks have a proven track record of providing significant upside potential in the favorable market conditions and falls less in the adverse market conditions.
  • The developed world is being forced to address their concern for the environment due to Global warming issues hence the need is for Alternative Energy sources.
  • These stocks are generally less volatile compared to mid and small cap stocks, providing a consistency in the mid to long term returns.

Why is there a need for focus?

  • Over diversification does not reduce the risk to a great extent but may end up compromising on the returns.
  • A portfolio of focused stocks can help in generating Alpha thereby beating the indices returns.
  • The fund manager will seek to take higher exposure in the focused stocks compared to the benchmark with the aim of generating higher returns.

Key Risks

  • Equity securities by nature are volatile and prone to price fluctuations on a daily basis due to both macro and micro factors.

Fund Manager

  • The fund manager as per the KIM is Anand Shah, but as informed by the AMC, the fund will be managed by Nilesh Shah (CIO) in the beginning and later in future Nilesh Shah will decide whether to continue managing the fund or to appoint another fund manager.
  • Nilesh Shah: He is ACA, Grad. CWA and has completed GFM – 25 programme at JP Morgan, New York, USA. He was handling Templeton Debt Funds and Franklin Equity Funds in India (1999-2002)· He was the Portfolio Manager - Fixed Income (1997-1999)· Prior to joining Franklin Templeton, he worked as Head of structured products group at ICICI Securities & Finance Co. Ltd. for over 5 years· He has worked in ICICI merchant banking division managing public issues and corporate advisory assignments.

Scheme Features

Asset Allocation Pattern:
Equity and Equity related Securities: 70 – 100 % Debt: 0 – 30%

Load Details:
Entry Load: Retail Plan: 2.25 % for < Rs. 5 Crore.
Exit Load: Retail Plan: 1.0% for < 6 months for < Rs. 5 Cr.

Benchmark Index: S&P CNX Nifty

Investment Options:
Retail: Growth & Dividend (Payout & Reinvestment).
Institutional: Growth

NFO Opens on 8th April 2008
NFO Closes on 7th May 2008

Minimum Application Amount: Retail Plan: Rs 5000/- & Institutional Plan: Rs. 10 crores

Investment Rationale

  • A concentrated approach of 20 large cap stocks portfolio may help the fund in outperforming the broader indices.
  • A focused large cap fund, which can be a value add to the portfolio in terms of exposure to fundamentally strong companies.