Over the last few years, the mutual fund industry has opened up several opportunities for retail investors to invest and earn good returns in close-end funds. Most of these funds are launched with an investment horizon of three to five years. However, fund managers feel that investors should prefer to stay invested for whole duration to earn higher yields for their hard-earned money.
Commenting on close-end funds, ICICI Prudential AMC ED & CIO S Naren says,”From a retail investor perspective, the necessity to stay invested for the whole duration of these funds can make them a good choice of investment.”
This fund predominantly will have a multi-cap based approach coupled with gradual hedging strategy, ensuring the investors have a good investment experience. This fund is being launched on the premise that earnings cycle is yet to improve, and most micro indicators have just started picking-up. “India is in the midst of economic uptrend and investors could participate in the equity market with a conservative approach,” adds Naren.
As far as the returns are concerned, close-end funds have performed much better than others. In fact, these funds were being launched in the second half of 2013, at a time when the country’s general election was due in the first half of 2014. Now, three years after, some of the funds have matured and the investor experience has been exceptionally good. For instance, if an investor had invested Rs1 lakh in any of ICICI Prudential MFs Value Series Funds, then that money would have been nearly doubled on maturity which was lined up recently (as shown in the table).
Closed-end funds generally allow the underlying fund strategy to play out to its full potentialdue to their fixed tenure, such as for 3 years. This structure allows the fund to choose investments that have the potential for good returns over the specified tenure without worrying about the underlying volatility inherent in the invested stocks.
“The close-end structure enables the fund to fully capture either any turnaround story in a company or the potential growth that can be realised over the invested timeframe. Also, since fund works with a fixed pool of money, the fund manager is devoid of worries on the capital inflow and outflow front,” says Pankaj Mathpal, Managing Director, Optima Money Manager.
Given the positive investment experience, many of the fund houses are launching close-ended funds now. This is at a time when on most market parameters, the market is either fairly valued or is quoting above fair value. This, therefore, calls for appropriate strategies for investing in the current market. Fund houses believe that a closed-end fund structure addresses exactly this concern.
Now, for anyone who has surplus cash that can be locked way for 3.5 years, ICICI Prudential AMC is launching another closed-end fund Value Series Fund-14, which, given the market dynamics, can be the right addition to your portfolio. As part of its investment strategy, this closed-end fund intends to focus on valuations and employ hedging tools to counter-balance mispricing in valuations.
Keeping the new fund offer or NFO in mind which closes on June 8, 2017,Matpalsays, “This fund is a brilliant opportunity for an investor to harness the myriad opportunities presented through the expertise of a seasoned fund manager. Given the fund house pedigree and their close ended scheme performance track record, the investment experience is likely to be encouraging.