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griculture in India is getting new set of investors – mutual funds investors. Interestingly, and surprisingly both, agriculture has just emerged as the new sector that has got into the list of investment worthy sectors by the fund managers itself is noteworthy. 

Surprising because, in one of the latest mutual fund offerings the fast-paced, promising agriculture sector has been clubbed with the slow-paced infrastructure sector. Interesting because, India’s agriculture sector finally emerges out as yet another attractive investment avenue – both for the corporates engaged in this sector and prospective investors of mutual funds. Till recently, the investors were hooked on to the sectors like IT, petroleum and gas, metals, telecom etc. 

Till few years ago, the investment needs in Indian agriculture was restricted only to the government. Since the past few months, the new investment pattern has emerged – the public, private partnership (PPP) route.

And now it is the mutual fund route.  JM Agri & Infra Fund is the latest mutual fund offering from the JM Mutual Fund. Its fund managers have banded together agriculture and infrastructure sectors and offered their latest unique concept for mutual fund investors. JM Agri & Infra Fund aims at providing long-term growth by investing in equity and equity related instruments of companies that focus on agriculture and infrastructure development of India.The new fund offering (NFO) opened on November 19, 2007 and will close on December 18, 2007 (more details below). 

Both the PPP and the mutual fund route are sure to boost up the much-needed finances in the post-harvest activities of agriculture which is purely market-oriented and therefore, minimal role of the government. Along with the continued growth in the booming Indian economy, fast-spreading mall culture, rising income levels leading to changing food habits have all begun to call for a new set of entrepreneurs to meet the rising demands on various aspects of India’s farm-to-dinner table food chain. And the fund managers at JM AMC have been fast to recognize this attractively rising trend. 

Quoting the KPMG-FICCI latest report on opportunities in the Indian food and agro industry, an article in Economic Times (dated October 19, 2007) had said ‘India’s food processing, agri business sectors set to grow 9-12%. Of this, fruit and vegetable processing, currently only around a meager 2%, is expected to shoot up to 10% by 2010 and to 25% by 2025’. The ongoing retail boom in India will drive the expansion of supermarkets/hypermarkets, facilitating greater exposure and visibility for processed food, as well as improving storage facilities,” the paper holds. 

This fast emerging promising opportunity will call for a host of other collateral services – storage & warehousing, quality assayers & grading, transportation. And given the relatively slow-paced and government supported activity that Indian agriculture was till recently, this whole gamut of activities will call for a huge investment. As and when the existing and new entrepreneurs are able to tap the required funds and enter the capital market, their potential growth and return on capital will surely be good investment proposition for cross spectrum of investors, including mutual fund investors. 

It is a different but important subject that the government, its political partners and bureaucrats all need to seriously consider allowing the much-required, but suspended, hedging facility for agro products. For various reasons, including political compulsions, the government has suspended trading in futures of majority of agro products on the nationwide multi commodity exchanges (NMCEs).  Given the high volatility in prices of agro products both in the domestic and the international markets this restrictive stance of government exposes the players to the rising risks in this sector and no hedging facility. Even the investors in this newly attractive sector would be adversely affected if the companies in this sector are devoid of the risk hedging mechanism. In turn, this restrictive policy stance could eclipse the much-desired growth of agro sector as a whole. 

Among others, the offer document of JM Agri & Infrastructure Fund clearly mentions that since the scheme intends to focus on agriculture, such companies are subjected to vagaries of nature like erratic monsoon, floods, drought, crop failure, etc….Also, the performance of the scheme will depend on the government and its policies’.

 A brief about JM Agri & Infrastructure  Fund http://www.jmfinancialmf.com/Downloads/ApplicationFormPDF/JM%20AGRI%20-%20INFRA%20OD.pdf 

1. A 3-year close-ended equity oriented scheme with an automatic conversion into an open-ended equity oriented scheme on maturity. The units of the scheme will be available at Rs 10 per unit during the NFO period (November 19, 2007 – December 18, 2007).
2. The investment objective of the Scheme is to provide long-term growth by investing predominantly in equity / equity related instruments of companies that focus on agriculture and infrastructure development of India
3. Sandip Sabharwal is the fund manager.
4. The scheme would attract an entry load of 2.25 per cent, if the amount invested / or the switch is of less than Rs 30 million.
5. Investment if redeemed within one year of allotment will attract 2.25% exit load but there will be no exit load if investments made through SIP (systematic investment plan).
6. The scheme offers two options – dividend and growth option. Under dividend option, investors have the facility of dividend payout and dividend reinvestment. Till maturity (before the conversion into open-ended ) of the scheme, only dividend payout option will be available to the investors opting for dividend option. Dividend reinvestment facility will be provided to the investors only after the scheme is converted into an open ended equity scheme on maturity. Dividend reinvestment facility will be provided to the investors only after the scheme is converted into an open ended equity scheme on maturity.
7. Conversion decision after 3-year period will depend on the performance of the fund during the 3-year period.
8. Application for minimum of Rs 5,000 and in multiples of Rs 1 thereafter. Once the scheme is converted into an open-ended scheme on maturity and opens for ongoing subscription, the minimum application amount will be Rs 1,000 and in multiples of Rs 1 thereafter.

 Mutual fund investors till recently were hooked on to industries sectors like information technology, telecom, metals and others like individual companies. Will the JM Agri & Infra Fund attract the desired attention from the investors?  

Stay tuned.