With continued outflows from equity funds, AMCs are trying to attract investors in close ended equity funds. Two fund houses have announced the launch of such funds.
Earlier in April 2013, IDFC launched its IDFC Equity Opportunities Fund Series I which collected a decent Rs. 240 crore during its NFO.
Recently, Union KBC Mutual Fund launched a three year close ended equity fund called Union KBC Trigger Fund Series I. However, this fund operates slightly different from the ones launched by IDFC and ICICI Prudential. Union KBC Trigger Fund aims to achieve a NAV of Rs. 13 in three year. If the NAV of the direct plan reaches Rs. 13 before the scheme’s maturity the scheme will be liquidated the same day.
ICICI Prudential’s Value Fund – Series 1, which opened for subscription on October 18, is a multi-cap fund which will invest in stocks which are available at a discounted price relative to the intrinsic value. Investors get an exit option from the exchange post the listing of scheme.
According to AMFI data, there are seven close ended equity funds in the market currently.
Cafemutual spoke to some leading financial advisers to find out whether it is worth investing in close ended equity funds.
“Investors can invest in close ended equity funds if the investment objective and strategy is well-defined. Structurally these are good funds as equity investment should be for long term. However, past experience suggests that many close end funds which invested in mid cap stocks did not perform well. The disadvantage with a close ended equity fund is that the fund manager will not get fresh inflows to buy when stocks are available at a lower price. Investors sometimes are averse to invest in close ended funds since open end funds have fared comparatively better,” says Hemant Rustagi of Wise Invest Advisors.
Many of the close ended funds have either been merged or converted into open end funds.
UTI - Infrastructure Advantage Fund – Series I, a close ended fund, got merged into UTI - Infrastructure Advantage Fund in 2011. Birla Sun Life Long Term Advantage, a close ended fund matured in October 10, 2011 and was converted into open ended fund thereafter. Religare Mid-cap Fund, SBI Infrastructure Fund, Sundaram BNP Paribas Select Small-cap Fund, DSP Black Rock Micro Cap Fund and Kotak Emerging Equity got converted into open end. Most of these funds were launched in 2007 when the markets were at peak.
Only UTI India Lifestyle Fund and UTI Wealth Builder Fund are still in existence.
Steven Fernandes of Proficient Financial Planners says investors should invest in these funds only if they have something new to offer. “The advantage of these funds for AMCs is that investors stay invested for three years because of the lock in period. Investors should invest in such funds only if they don’t need the money for three years. It is not necessary that close end funds perform better than open end funds. For instance, ELSS have not fared well in the last three years.”
Vinayak Sapre of VVS Ventures says that investors who have a higher risk appetite and don’t have need liquidity can consider investing in such funds.
