MFs fall back on closed-ended funds

MUMBAI: Prompted by Indian investors' inability to stay invested in equity funds for several years and also their record of entering these funds when the market is peaking and redeeming when the market is at a low, fund houses have been mobilizing money through closed-ended funds. Dalal Street's expectation of a strong turnaround in the economy too is prompting fund houses to mobilize money from investors through closed-ended funds so that they can ride the bull rally, top fund managers said.

Over the last one year, about 35 closed-ended schemes have mobilized over Rs 6,000 crore, while a couple of schemes — one each from UTI Mutual Fund and ICICI Prudential Mutual Fund — are currently open for subscription.

Closed-ended schemes are those in which the fund house mobilizes funds during the new fund offer (NFO) period and then the fund manager manages it for the duration of the schemes, usually three years or more. In these funds, investors do not get the chance to exit during the tenure of the fund except through the stock market, where all these funds are listed. Since investors cannot redeem as and when they want, fund managers enjoy more liberty in managing their portfolio and also have higher responsibility to deliver a superior return, industry officials said.

"We wish to give a better experience to investors (in terms of returns), so we have launched closed-ended funds with dividend options," said S Naren, chief investment officer, ICICI Prudential Mutual Fund, which has launched eight closed-ended funds so far in the last one year. Its ICICI Prudential Value Fund Series 5 is closing on Tuesday. "We started when the market (benchmark indices) was much lower and we believe we will be able to give good returns to investors," Naren said.

UTIMF's Focused Equity Fund Series I is closing on Wednesday. "The fund is taking a concentrated exposure in stocks to maximize benefit from the recovery in the economic cycle, which we believe should play out over the next few years," said Lalit Nambiar, fund manager and head (research), UTI Mutual Fund. "Returns in equity are non-linear and to capture them one needs patience and discipline, which is ensured by a closed-ended structure," Nambiar said.

In the last few months, fund houses like SBI MF, Sundaram MF, Birla Sun Life MF, LIC Nomura MF and Reliance MF have launched closed-ended funds while several more are in the pipeline, fund industry officials said.

http://timesofindia.indiatimes.com/followceleb.cms?alias=mutual funds,Closed-ended schemes

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