In order to take advantage of the newly introduced GST, a few large fund houses – ICICI Prudential, HDFC and Birla Sun Life – have launched close-end equity funds focussing on GST.
Currently, the NFOs of all three schemes – ICICI Prudential Value Fund (Series 15), HDFC Equity Opportunities Fund (Series 2) and Birla Sun Life Resurgent India Fund (Series 4) – are open for subscription. These schemes have tenure of up to three-and-a-half years and will focus on stocks that are likely to benefit from the recovery in the Indian economy and the shift from unorganised to the organised sector because of GST.
Speaking of the fund, Mahesh Patil, Co-CIO, Birla Sun Life Mutual Fund, said: “Our fund will focus on consumer goods and building materials companies which are likely to benefit from GST. No doubt, we will incorporate changes in our existing open-end funds; however, exposure to such stocks will be higher in close-end funds.”
Since the pricing advantage for the unorganised sector goes away with the implementation of GST, fund managers are bullish on FMCG and consumer goods sectors, as their manufacturing cost has come down, making these companies attractive for fund managers. Srinivas Rao Ravuri, Senior Equity Fund Manager, HDFC Mutual Fund, says, “With implementation of GST and growth in digitalisation, there will be level playing field between the organised and unorganised companies. With organised players likely to gain market share at the cost of unorganised players, we may see higher earnings growth in the organised space.”
Sharing the rationale for a close-end structure, he says, “As the fund will have a differentiated strategy of buying long dated 3-year NIFTY50 put option to limit the downside, it will be difficult to run this strategy in an open-ended structure, where there are frequent inflows and outflows. Fund managers cannot take hedging calls in open-ended structures.”
Fund managers believe advisors should position such funds as thematic funds. The Co-CIO of Birla Sun Life MF says that advisors should recommend their investors with high-risk appetite to invest around 15-20% of their investible corpus in such thematic funds.
With an eye on the future, Srinivas believes, “Advisors should explain to their clients that such a fund can help them take exposure to various themes which will be the leaders of the upcoming market cycle, while offering downside protection through arbitrage opportunities.”
A few advisors believe that investors with appetite for high-risk can consider taking exposure to such funds. "Investors should consider the track record of the fund manager. Investors can invest in these funds once they are confident with the capability of the fund manager," says Mumbai-based Vinod Jain of Jain Investments.
Some advisors, though, are not convinced about such funds. They say they prefer recommending open-end fund having exposure to FMCG and consumer goods stocks. “Diversified schemes can take exposure to stocks that will benefit from GST. However, investors who have a conviction in GST and close-end funds can go ahead with such funds,” says Mumbai-based Amol Joshi, Founder, PlanRupee Investment Services.
Suresh Sadagopan, of Ladder7 Financial Advisories, feels that investors should not invest in funds with exposure to quality stocks. “GST is just a new tax structure. In my view, investors should go with funds having quality portfolios where fund managers invest the corpus based on hygiene factors such as good management, competitive advantage and attractive valuation. Though some sectors will be in an advantageous position because of GST, the new tax regime cannot be the reason for choosing a stock,” he says.
