| . | During the last fortnight, the Investment Markets have been trying to figure out the impact of the "Buy Back Scheme" announced by the government. SEBI is now formulating detailed guidelines on the scheme. The intentions and the expectations of the government in introducing the scheme has been to lift the morale of the investors and urge them to return to the markets. The initial reactions to the announcement have however been luke warm and the prospects of the markets reviving as a result of the announcement are fast receding. Perhaps the market is afraid that SEBI will live up to its established reputation and ensure that the benefits in the scheme, if any, do not reach the markets. Another reason for the lack of interest could be that , the regulators are not presently considering a system of treating the buy back as a treasury operation. Under this scheme, if the company thought that the shares were undervalued in the market, they would exercise the buy back option. The positive signals sent out to the market by such a move would encourage other investors also to start buying until the equilibrium price is reached. This method would have benefited the investors since it would have ensured a price support system for the scrip. Obviously SEBI sees a possibility of Price Rigging by the Company under this scheme and has recommended the scheme under which the bought back shares would permanently reduce the capital. The companies would also not be allowed to issue Bonus shares for some time under this scheme. Investors may have to therefore reconcile themselves to a continuation of the current trend in the market place. In such a scenario, it is worth looking at those options which have enabled investors to gain a reasonable return in the immediate past despite the depressed market conditions. One such option is the "Birla Advantage mutual fund scheme". This open ended scheme which invests in equity, opened in October 1995 when the BSE Sensex was around 3455. Now , after 3 years, while the Sensex is still 2844, the NAV of the fund has moved to 14.77. Since the starting NAV was Rs 9.40 after the issue expenses, the NAV has grown by about 57 % even when the Sensex has dropped by about 18 %. The investors who have invested initially in the fund have seen their investments appreciate by 47.77 % in the period which amounts to around 15 % p.a. on an average. If the fund managers have been able to provide such a return even in the worst of times, it can be reasonably expected that they may provide an even healthier returns when the markets move up. The fund has a corpus of around Rs 70 crores almost entirely invested in equity shares. The top ten shares in the portfolio as on September 30 (Refer table) had a fair share of IT stocks which have gained considerably in the last three years.
Presently the fund has announced a "No Load" period upto December 1998. Investors can therefore purchase units at the NAV of the scheme which is presently Rs 14.77. Investors can also consider using the Systematic Investment Plan offered by the fund where by, smaller amounts (say Rs 1000) can be invested every month . In such a case, investors would be building up their investments at an average price distributing their price risks. This may be attractive for those investors who would not like to commit all their investments at the current NAV and expect it to come down. This target amount approach will mean that when the prices go up, fewer units would be bought while when the prices go down, more units would be bought. In the process, the investor would automatically end up buying the units at the average price over the entire period of purchase. Na.Vijayashankar October 6,1998 | . | ||||||||||||||||||