A sector-specific fund, the IT fund will invest in scrips from the information technology sector. The first IT-specific fund was launched by the Unit Trust of India for overseas investors. A close-ended fund, it mobilised Rs 170 crore.

The IT fund from KPMF has an in-built provision, whereby it can invest up to 30 per cent of the corpus in the overseas markets, as and when permission is granted. Although guidelines on overseas investments are expected shortly, the fund is unlikely to take an immediate exposure in scrips abroad.

‘‘Initially, the fund is likely to concentrate on domestic scrips and go for overseas investments once the corpus reaches a healthy level, says an analyst. However, the fund will be relatively volatile due to its restricted investment horizon. ‘‘Already we have seen thevolatility of the IT pack with scrips hitting the upper end of the circuit in a rally and vice-versa during a fall of 80 to 100 points, says a sector analyst.

Kothari Pioneer AMC is targeting an initial subscription in the range of Rs 5-10 crore. The fund will close for initial subscription on August 22 and open for sale and repurchase of units on September 14. ‘‘We are not looking at gains from the sector in 3 months to six months but over a period of 3-5 years since the sector offers tremendous growth rate, says Vivek Reddy, chief investment officer, KPMF.

Although UTI recently postponed its information technology and banking sector fund, citing poor market conditions, KPMF is bullish about the prospects of the sector. ‘‘We are not bothered about the short-term gyrations in prices as the sector will generate above 5-10 per cent higher returns than the market in the long-term, says fund manager R Sukumar.

The asset management company plans to position the scheme as a booster fund. ‘‘Currently, it takesa minimum of Rs 2 lakh to buy a market lot of Infosys but this fund will help attain a well-diversified portfolio in the sector for a minimum investment of 5,000, elaborates Reddy.

The fund manager plans to have a core portfolio of blue-chip IT stocks like Satyam, Wipro and NIIT and add second-rung IT stocks but avoid those in the speculative grade. Besides software, the fund is likely to purchase stocks from the training sector, where the margins are higher.

‘‘We are at present looking at only 10-15 IT companies but in the future, more robust companies will come out and the sector is expected to share a big slice of market capitalisation and GDP, says Reddy.

The AMC has hinted at an active portfolio management with annual portfolio turnover in the range of 50 to 100 per cent. The fund will offer dividend and growth options. The AMC will also provide for lateral shift of investments from other funds under management to the IT fund.

Software stocks have been much sought after by investors in the lastone year with a number of equity funds investing more than 30 per cent of their corpus in the sector. The country's software exports have leaped from $1.1 billion in 1996-97 to $1.75 billion in 1997-98. Coupled with the rising exports is the benefit of a depreciation of the rupee. The top 20 exporters account for 60 per cent of the exports. The sector is expected to witness a growth of over 60 per cent per year in the next few years.