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new name joins the numerous fund houses we already have -- to be precise, there are 30 Asset Management Companies (mutual fund houses) in India offering around 667 mutual funds. Say hello to Fidelity, the American AMC making its debut in India.
Fidelity is well-known internationally. Entrusted with savings of over $1.2 trillion which it invests for more than 20 million investors; it is the world's largest fund manager. This is the first time it will be investing in the Indian market.
On Monday (March 21), Fidelity will come out with its first fund. The initial offering will open from March 21 to April 19. It will close to the public for some time and open again.
Normally, soon after a mutual fund offering, the fund closes for subscription for around 30 days. During this time, they invest the money and the basic portfolio is constructed.
Once it re-opens, you are free to buy and sell units whenever you want.
Before you take a decision, here's what you need to know.
Investment philosophy
There are two ways in which funds invest: a top-down strategy or bottom-up strategy.
Top-down philosophy
The first thing a stock analyst will look at is the broad economic picture. What is the current condition of the economy, the outlook, interest rates and other economic and political events that may affect the stock market?
Based on this analysis, he will consider industries which will do well in this scenario. Then, they decide which companies within these industries they want to invest in.
Bottom-up philosophy
Over here, the starting point is not the overall economic state. Instead, individual companies are analysed. Their performance, profits and sales, potential for growth and current market price are some of the factors considered.
If the stock makes for a good buy, it is purchased.
Those holding this view feel the overall economy is less of a factor in the long run.
Fidelity will base its investments on the bottom-up stock strategy.
Diversification
It is a diversified equity fund. This means it will invest in shares of various companies from various sectors.
Fidelity will contain a portfolio of about 75 stocks.
There is no limit when it comes to deciding how much of a fund's total assets (how much money the fund has to invest) can be invested in a single company. Fidelity, though, has decided on an informal limit; it will not invest more than 4% of its total assets in a single stock.
As far as investing in a particular sector is concerned, it has set itself a maximum limit of 25%.
How to invest
1. You can invest a minimum amount of Rs 5,000 in the fund directly. You will have to pay 2.25% of the amount you invest as entry load (fee charged when you buy units of a fund).
2. The other option -- a Systematic Investment Plan -- seems better. An SIP helps you space your investment over time. You don't have to invest at one go. You can space it out over the year.
This means you give post-dated cheques and the investment is made at periodic intervals -- either every month or once in three months (every quarter).
The minimum cheque amount has to be for Rs 500. So you will have to give at least 10 cheques. If you wish to invest higher amounts, you are free to do so. Do remember, though, that you will be required to give at least six post-dated cheques.
The good thing about this option is that you part with smaller amount of money at a time and you don't pay an entry load. An entry load is charged only if each cheque is for more than Rs 1 lakh.
When can you sell your units?
Whenever you want to.
But you will be penalised if you sell within six months. In this case, you will have to pay an exit load (fee charged when you sell the units of a fund) of 1% on the amount you make.
Just because you paid no entry load for an SIP, it does not mean you will get the same benefit when you quit the fund.
For SIP investments, you are penalised if you sell before two years. A charge of 2% is applicable on redemptions (selling of your units) made from the SIP.
So, if you would like to invest in Fidelity, consider the SIP option and stay for the long haul.
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