Five more close end funds to hit the market soon

Axis, Birla Sun Life, Kotak and Sundaram have filed offer documents with SEBI for launching close end funds.

The euphoria surrounding close end funds does not seem to have subsided yet. Four more fund houses have filed offer document with SEBI to launch their close-end funds.

Axis is planning to launch series 2 of its Axis Opportunities Fund – three year and five year close end funds. Benchmarked against BSE 200 Index, the fund will invest across sectors & market capitalizations.

Similarly, Kotak is planning to Kotak Growth Fund which will have a diversified portfolio consisting of all market capitalization and sectors.  

Birla Sun Life has also filed offer document with SEBI to launch its close end fund. Birla Sun Life Emerging Leaders Fund will invest in small and mid-cap companies. It’s a trigger based fund. For instance, this fund will pay out dividend if the NAV of the schemes goes up by 20%. Thus, the trigger would be activated each time when NAV the scheme reaches Rs. 12, Rs. 14, Rs. 16, and so on.

Sundaram Mutual Fund has also filed an offer document for its close end fund, though this one is an overseas fund of fund. Sundaram plans to come up with series three of this fund called Sundaram World Brand Fund with maturity ranging from 18 to 60 months. Earlier this year the fund house had three series of its Select Micro Cap Fund, a close end fund.

L&T is launching its L&T Emerging Businesses Fund, a two year close end fund on April 22. The fund will become open-end after two years. The fund is benchmarked against S&P BSE Small Cap Index.

Most of the close end funds launched by fund houses had a bias towards mid and small cap sectors. Mid cap funds have outperformed their large and multi cap peers over one and three year period. Value Research data shows that mid & small cap category has delivered an absolute return of 43% over a one year period and 16% return over a three year period, beating large cap and multi cap funds.  

Fund managers are betting on undervalued stocks which can benefit once the investment cycle revives. The trend of close end funds started with IDFC’s Equity Opportunities Fund last year which met with a good response by collecting Rs.  260 crore. It launched Series II and III this year.

ICICI Prudential’s Value Fund Series 1 was the highest grosser which collected Rs. 643 crore.

However, experts are cautious of recommending such funds to investors.  

"We have not recommended close-end funds to our clients. We believe that open-end is a better structure. New funds are being launched on the basis of optimism surrounding the market but it is not certain whether markets will continue to do well. If similar funds are available in open-end structure then it is better to invest in open-end funds" says Renu Pothen, Research Head, Investment Advisory Division, Fundsupermart.

“In case of liquidity requirements, one can exit by selling units through stock exchanges. However, investors can face losses if the NAV is trading at a discount. We are recommending open end funds to our clients,” says a Mumbai based distributor.

Though not many are recommending investing in close end funds, the funds launched so far have managed to mop up more than Rs. 2,000 crore from investors.

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