Fund houses are positioning their closed end funds in a new avatar to attract investors.
The recent equity funds launched by fund houses are collecting tidy sums.
Reliance has collected Rs. 1,000 crore in its Reliance Capital Builder Fund. "Investors are bullish on the economy and the markets for the next three years. Our Capital Builder Fund is designed to help investors get enhanced participation on the upside. I think funds which have a differentiated theme will get a good response from investors," said Himanshu Vyapak, Deputy CEO, Reliance Mutual Fund.
Similarly, UTI Focused Equity Fund Series I and Series II collectively mopped up Rs. 1,670 crore. DSP Black Rock’s 3 Years Closed End Fund, which was modelled on the lines of its existing micro-cap fund collected Rs. 670 crore.
Distributors say that some of these NFOs were successful because of their unique themes. Reliance Capital Builder Fund was also positioned differently with the fund aiming to maximize returns by investing in stock options. The fund invests up to 80% of their net assets in large and mid-cap stocks and remaining 20% in stock options.
Similarly, while majority of the closed end funds will mature after the three year tenure, L&T Emerging Business Fund will become open end after a two year lock in. Another fund from Union KBC stable was a trigger based fund which matured after hitting a NAV of 13 in eight months of the launch. This structure ensured that investors made money within a short span of time without having to wait for three years.
“Some of the funds launched in the recent past had some differentiating factor. For instance, Birla Sun Life connected with investors with the manufacturing theme. DSP Black Rock launched its new micro-cap fund because the existing fund had become too large. And UTI’s new fund offer was success because of its wide distribution network,” said Vinod Jain of Jain Investments.
In addition, the high upfront commissions enthused distributors. Apart from high incentives and the unique positioning, distributors say that the optimism in market is also helping them attract more investors in NFOs. The BSE Sensex crossed a new record of 29,000 this week.
“The higher incentives in these products nudges distributors to put in extra efforts to reach out to more clients. Banks and large wealth management firms are the ones who can bring in such volumes,” said a Mumbai based distributor who manages assets under advisory in excess of Rs. 300 crore.
In the last 15 months, the industry has seen the launch of more than 50 new equity funds, majority of them being closed end funds. Collectively, these funds have mopped up Rs. 11,130 crore. As many as 13 closed end funds were launched in December alone which collected Rs. 2,222 crore.
Some advisors remain cautious on the category.“All the closed end funds launched by different AMCs are not same. Different schemes have different objectives and sector exposure. Investors should look at the AMC’s pedigree, fund manager and investment strategy before investing in a closed end fund,” recommends Vinod.
With the market reaching a new high, experts believe that the trend of new fund offers is likely to continue.
