If you have seen the Sprite ad, you will appreciate this for sure! Mutual funds have a compulsion to raise money continuously – and this they can do only if their sales team is able to sell.
However, in a very funny way, ‘what sells is what gets sold’ – so they need to come out with ‘NFOs’ (new fund offers) regularly. This is very simple – but for a SEBI diktat – which does not allow a MF to come out with a nfo if it already has an existing fund similar to the one that it wants to launch.
So mutual funds play the labelling game and you have an alphabetic soup out there – dividend yield, power fund, blue chip fund, mid cap fund, ….and we have about 400 equity schemes but labelled differently.
Having created such a large alphabetic soup fund the managers have to buy shares which fit into the ‘scheme’. This is difficult. If you are running a power fund for example can you buy the shares of a ‘merchant banker’ (thank God none of them are listed)? The answer is YES. Afterall you can argue ‘this merchant banker will help power companies raise money in the capital markets’. So the label is just a fable which was meant to ‘entrap’ you.
It is very difficult to run a very focused fund – especially for a short period – and all fund managers move jobs quite frequently. So a power fund can have a bank, a ‘opportunities fund’ can have a bank, a ‘special situations fund’ can also have the same bank. Also if you ran a blue-chip fund you could pick up the same bank. If you ran a ‘growth’ fund you could pick up the same bank, because it has a good growth prospects. If you ran a value fund you could still pick up that bank because its price has dropped and is now below the book value. If you ran a large cap fund you could pick up that bank because that bank is a large cap bank. If you ran a mid-cap fund you could pick up that bank because the bank helps small and medium enterprises.
So if somebody were to talk to you about investing in a ‘dividend-yield’ fund, ask for the portfolio, you may be surprised that the portfolio is similar to the ‘growth’ fund that you already own!
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