IT Sector Mutual Funds: On A Roll

The Indian mutual fund industry is more than 45 years old
with the Unit Trust of India being the biggest player with assets under
management over Rs 27,000 crore. Reliance Mutual Fund is the second largest
player, managing a corpus of more than Rs 16,859 crore as of February 2006. As
the sector matured, it saw the emergence of products offerings suited to
different types of investors. Sector-specific mutual funds were first of the
block with those focused on companies in FMCG, Life Science, Infrastructure,
Pharmaceuticals and Healthcare, and Petroleum among others. Such funds invest
their entire corpus in companies that operate in these sectors. The aim of
introducing IT focused funds was the lack of understanding of the IT sector by
lay investors and the booming share prices of the stocks. At present, at least
five mutual funds are dedicated to technology and new economy stocks.

The Indian equity market is on the roll for the last 2-3
years with BSE Sensex touching new highs everyday. The future of equity looks
quite promising with GDP growth projected at 8-10% for the next few years. This
superior return expectation is, therefore, attracting a whole lot of new
investors-both domestic and foreign-to the equity markets. The question for
an investor today is whether to directly buy stocks or alternatively invest
through the mutual funds. 

The IT specific funds have been in the limelight for last
two years due to global upsurge in IT spending. In the last one year, all the
funds listed have shown decent rise in NAV terms, and most of the IT funds have
outperformed the BSE Teck, an index to track the movement of IT stocks.

We believe that the IT sector will remain one of the best
performing sectors in India. Companies such as HCL Technologies, Infosys, TCS
and Wipro had won mutimillion dollar contracts, and more such contracts are
expected in future. This significantly reduces the risks related to this sector.
While short-term shares price movements may be led by specific companies'
results, the long-term fundamentals of the sector cannot be questioned.

UTI Growth Sector Fund

UTI's growth and dividend sector software fund is a
technology-specific, open-ended fund with a size of Rs 140.4 crore, as on
February 28, 2006. The fund was one of the few sector-specific funds set up by
UTI to take advantage of the opportunity of the fast growing sector. The
objective of the fund is to invest at least 80% of the total corpus in
equity and equity related instruments of software companies. As on February 28,
2006, 94% of the investments were in Software, 3.5% in Entertainment and 1.6% in
Telecom. Infosys was the top holding in terms of value of net assets at 20.15%,
Tata Consultancy Services at 14.54% Satyam Computer Services 10.9%, Wipro at
9.2%, and I-Flex Solutions was at 7.9%. Other prominent investments were in HCL
Technologies, Subex Systems, 3i-infotec and Television Eighteen India.

DSP Merrill Lynch Technology.com

DSP Merrill Lynch Technology.com fund was launched during the
technology boom in 2000. The main objective of the fund is to generate long-term
capital appreciation by investing in technology and technologies enable
companies. The fund's top 10 holdings, as on February 28, 2006 were Infosys
with 17.2%, TCS 10.2%, Wipro 8.4%, i-flex Solution 8.2%, Satyam Computer
Services 6.2%, Bharti Televentures 6.0%, Prithvi Information 4.8%, Mphasis BFL
4.5%, HCL Technologies 4.0% and Infotech Enterprises 3.8%. Other holdings
includes Avaya Global Connect, Adlabs, Bharat Electronic, Hexaware Technologies
and Aptech. DSP Merrill Lynch Technology.com holds total 32 scrips as on
February 28. 2006.

Birla Sun Life New Millennium Fund

Birla Sun Life Millennium Fund, formerly knows as Alliance New
Millennium Fund, is a open- ended multi sector fund. It is aimed at long term
growth of capital, through a portfolio with a target allocation of 100% equity,
focusing on investing in technology and technology dependent companies,
Hardware, Peripherals and Components, Software, Telecom, Media, Internet and
e-commerce and other technology enabled companies. The secondary objective is
income generation and distribution of dividend. 94.2% of the fund's investment
is in equity, 4.7% in debt and the rest in the money market. The size of the
fund was Rs 97.9 crore, as on February 28, 2006. The fund's holding in terms
of value in Hinduja TMT is 9.8%, Satyam computers formed 9.6% of the net assets,
followed by HCL Technologies at 9.4%, Infosys Technology 8.7%, Tata Consultancy
Services 7.9%, Geodesic Information Systems 5.9%, Nucleus Software Exports 5.2%,
and Mphasis BFL 5.0%. Other major investments are in Allsec Technologies, Wipro,
3i Infotech, Subex Systems, i-flex Solutions and Geometric Software.

Franklin Infotech Fund

Formed in August 1998, this dedicated technology fund from Franklin
Templeton Investments, has a size of Rs 154.2 crore as on February 2006,
compared to 162.9 crore in January 2006. As on February 28, 2006, FIF had
invested 37.7% of the assets in Infosys, 19.7% in TCS, 13.8% in HCL
Technologies, 9.4% in Wipro, 7.4% in Satyam Computer Services, and 6.8% in i-flex
Solutions. Apart from these investments, the FIF portfolio consists of the
Infotech stocks such as Patni Computers, Mphasis BFL, iGate Global Solutions,
Scandent Solution, Visual Soft Technologies and Alberg Software. During the
month of February this year, the company hiked its exposure in equity from 98.2%
to 100.8% with negative current assets of 0.8%. FIF has increased holdings in
Satyam Computers Services.

The ICICI Technology Fund

The ICICI Technology fund was formed to invest in equity and equity
related instruments in the new economy sectors such as Technology,
Telecommunications, Life Sciences and Media with an aim to provide long-term
capital appreciation. As on February 28, 2006, the fund size stood at Rs 128.8
crore. Subex Systems, with 12.5% of NAV, has the top holding of the fund,
followed by Deccan Chronicle Holdings with 12.2%, Satyam 5.6%, Mastek 5.4%,
Infosys 4.9% and TCS 4.4%. Other major investments were in HCL Technologies,
Visual Soft and Tulip IT Services, Aztec Software and Technology Services,
Hexaware Technologies, Hinduja TMT, Megasoft, and Prithvi Information Solutions
among others.