The Hindu Business Line : Close-ended schemes are the in-thing for AMCs

Fund themes
The list of those who have lately mooted close-ended funds includes AMCs such as UTI, HDFC, Tata and Kotak Mahindra
Some schemes devised initially as close-ended but becomes open-ended at the end of maturity period

Kolkata , June 2

Close-ended schemes, especially the three-year variety, are suddenly a rage in the asset management space. Mutual funds are working out close-ended products, turning these out briskly with the hope that clients will latch on to the idea of staying invested for a certain pre-determined maturity period.

Offer documents filed by a number of fund houses with the market regulator show how pushy the players have become on this front. The list of those who have lately mooted close-ended funds includes AMCs such as UTI, HDFC, Tata and Kotak Mahindra.

Mutual fund circles, which suggest that there is a certain demand for close-ended options, seem convinced about their efficacy as they help in retaining money (at least till maturity). Steeper exit loads, to be charged at the beginning only to be reduced as the maturity period nears its end, are a deterrent for some investors, sources said.

In some cases, the schemes being devised initially as close-ended are expected to become open-ended at the end of the maturity period. Such conversion will be automatic, unless the trustees decide otherwise.

Redemption window

These schemes, it is pointed out, will usually allow redemptions on certain fixed days while they remain close-end. Take, for instance, UTI MF's Wealth Builder Fund, which will permit an investor to exit or switch-out every six months at a price linked to NAV. The `redemption window' in this case will be made up of five business days on a six-monthly basis.

Tata MF's Rural India Fund is another case in point. This is being positioned as an 18-month equity product, also with automatic conversion.

As the name suggests, it comes with a clear investment theme — companies that stand to gain from rural development.

The broad sub-themes within its ambit will pertain to agriculture, infrastructure and consumerism.

Most of these schemes have a broad mandate, the sources said. In a typical case, the aim is capital appreciation by actively allocating to equity and equity-related instruments.

There are defensive issues too, ones that are to be normally addressed through a mix of debt and money market instruments.

However, it is not that close-ended options are being assigned typical names. ING Vysya MF's latest offer document relates to a `dynamic asset allocation fund'.

Simply put, this is again a three-year product, which will be free to invest in equity and fixed-income in order to optimise returns.

The offer document explains that the AMC will also be free to adopt an aggressive strategy — even invest 100 per cent in stocks if the situation so warrants. It will also be possible for the fund to scale this down to zero.

Data released by SEBI incidentally point to a long list of fixed maturity plans. These include schemes mooted by UTI, Birla Sun Life and DSP Merrill Lynch.

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