The Hindu Business Line : `We will maintain conservative approach' — Mr K.K. Mittal, V-P, Escorts Mutual Fund

"On the equity side, we prefer large-cap stocks, mostly representing the old economy. It is aimed at investors who would go in for relatively higher returns at moderate risks."

ESCORTS Mutual Fund, which had started in the mid-1990s with a close-ended income scheme, is now turning more ambitious, thanks to its plans to come out with new products and create greater awareness in the market.

Mr K.K. Mittal, Vice-President and in charge of investments, talks about the fund's strategy with particular reference to its flagship income option. "Escorts MF will remain a conservative house," he says in an interview.

Excerpts.

Escorts Income Plan has heavy exposure to state government securities. Your comments.

Yes, we do believe in seriously investing in state government papers provided they meet all our requirements. The income fund's portfolio is currently dotted with securities issued by the governments of Andhra Pradesh, Kerala, Tamil Nadu and the like.

You will agree that government-guaranteed instruments give investors a certain sense of comfort. There may be delays in servicing on the part of the authorities but chances of default can be ruled out. Moreover, these provide us with better returns. There is no harm in taking advantage of good rates.

We regularly monitor the activities of these governments in terms of implementing policy reforms. State finances as well the progress made on this front are also important considerations.

Does this mean you avoid corporate papers?

Remember, companies have defaulted in the past. Even well-rated companies have been downgraded by the rating agencies for non payment of interest and principal. To that extent, investing in corporate papers is a riskier proposition. However, we do have some exposure to securities issued by financial institutions like IDBI. There are those who criticise our inclination for state government securities. But aren't these governments working despite all their problems?

You still have a relatively small asset base ...

The assets under management stand at approximately Rs 100 crore, which is certainly small if compared to a whole lot of others. We are looking forward to starting a marketing initiative, which should take us to the region of Rs 400 crore in the next couple of years. In fact, our next launch, a high dividend yield scheme, should help mobilise a decent amount.

The idea is to present ourselves in a manner so as to attract investors of various classes. But the MF will not give up its conservative stance when it comes to investments and marketing practices. Take, for instance, equity allocations. The fund is very cautious and is not easily swayed by momentum plays in the technology sector.

How do you uphold the claim that Escorts Opportunities Fund is rather unusual?

This is a scheme with a definite tilt towards debt, especially state government issues. On the equity side, we prefer large-cap stocks, mostly representing the old economy. It is aimed at investors who would go in for relatively higher returns at moderate risks.

Incidentally, the scheme has been using derivatives to its advantage for some time. Derivatives are also a de-risking tool. In recent times it has invested in such pivotals as SBI, L&T, Tata Steel and Reliance.

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