NFO: Mahindra Rural Bharat and Consumption Yojana offers catch-all rural themeYoung fund-house Mahindra Mutual Fund is back with a new fund offer (NFO) with rural and consumption as the themes. Christened Mahindra Rural Bharat and Consumption Yojana, this is the fourth equity fund from the company. The NFO opens on October 19 and closes on November 2. The thematic fund is a collection of attractive themes that have lured investors over the last 3-4 years. This all-inclusive approach gives the fund manager the room to choose many stocks.

Fund construct

Thematic funds always pick a hot theme that is the cynosure of all eyes. For Mahindra MF, ‘Rural Bharat’ and ‘Consumption’ are the important keywords. MF investors already have a way to access rural theme through the over 12-year old Sundaram Rural and Consumption Fund. So, what is special about Mahindra’s new fund offering? Well, the rural story has changed a lot in the last few years. The rural populace is today buying a lot of things and is a much bigger force than the urban consumers.

The Mahindra equity fund will focus on four areas: farm sector, rural infra, consumption, and financial services. In the farm sector, it can invest in companies involved in selling farm equipment, farm inputs, farm outputs, and agriculture-related stuff. In the rural infrastructure, there are companies involved in making roads, supporting irrigation, power and in manufacturing metals and cement. It is no wonder that the consumption theme has consumer durables, automobiles, and other consumables.

Lastly, the financial services piece has microfinance firms, retail, and housing finance companies, insurance, and vehicle finance players, to name a few. In addition to the above, the scheme may also invest in any other sectors that are likely to benefit from activity in rural India in future due to rural growth-oriented policies adopted by the government or introduction of new reforms.

A minimum of 80% net assets will always be in rural equity assets for the fund. A maximum of 20% can be in non-rural related securities.

In a nutshell, the Mahindra Rural Bharat and Consumption Yojana will invest in segments with the strongest contribution potential to India’s growing GDP. It will focus on segments largely insulated from global volatility. Lastly, this will aim to be a vehicle to ride the under-penetration opportunities in rural India.

Fund details

The new fund offer opens on October 19, 2018 and closes on November 02, 2018. The open-ended scheme then reopens for continuous sale and repurchase within 5 business days from the date of allotment.

The available plans for subscription are Regular and Direct (D). Under options, you have Dividend and Growth to choose from. In the sub-options/facilities, you can opt for either Dividend Payout or Dividend Re-investment.

The fund manager will be V Balasubramanian. The equity fund will be benchmarked against the Nifty 200 index.

An exit load of 1% will be payable if fund’s units are redeemed / switched-out upto 1 year from the date of allotment. There is no exit load if fund units are redeemed / switched-out after 1 year from the date of allotment.

Peer performance

The Sundaram Rural and Consumption Fund, erstwhile Sundaram Rural India Fund, is a good example of what this theme can do. The Rs 2,390 crore fund has delivered 11.4% return CAGR since inception. This is not great, but it is not bad as well. In the year to date period, when markets have been weak, the fund has dropped by 14.6% versus the Nifty 500 TRI’s 6% odd decline. The fund has not done well in last one year. However, in a 3-year basis, the fund has clocked 13%+ returns while the 10-year returns are close to 16% annually.

The Sundaram fund’s top holdings include ITC, M&M, HUL, UPL, Britannia, SBI, Asian Paints, Tata Global Beverages, Dabur India and Tata Chemicals. We will have to see what kind of stocks Mahindra Rural Bharat and Consumption Yojana will put in its own portfolio.

RupeeIQ take – We have no problems with thematic funds, but they are a niche product category. You should not have more than 5-10% of the portfolio in thematic funds. If the market is weak, returns will be paltry. Mahindra Rural Bharat and Consumption Yojana has tried to cast its net wide in terms of good quality stocks. V Balasubramanian is a veteran manager. The fund does a good job of bringing in multiples themes in one basket. So, it remains to be seen how the manager tweaks the portfolio to meet his expectations. If you like the supermarket approach in terms of investing, the Mahindra Rural Bharat and Consumption Yojana is a good fit for you.

Disclaimer: Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.