The Hindu Business Line : GEMS from Kotak Securities

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GEMS from Kotak Securities

Shanthi Venkataraman

If you have a big investment surplus and would like a portfolio that is custom-made to your risk profile and financial goals, you could consider availing of portfolio management services. There are several offerings that are tailored for high net worth investors with a high- risk appetite. One such product is GEMS, the latest offering from Kotak Securities’ Portfolio Management division.

GEMS is a 30-month closed-end product. The scheme intends to create a focused portfolio of stocks from across sectors and market capitalisation ranges. Its main feature is its special mandate to participate in the pre-FPO (follow-on public offer) placements and private placements of listed companies. Investments of up to 30 per cent of the overall assets can be made in such opportunities.

Kotak PMS has a dedicated fund management and research team that frequently meets management of companies and is well-placed to spot such opportunities. Investing at a pre-FPO stage or in a private placement offers the opportunity to enter a stock at a special price, usually at a discount to the market price. There is potential, therefore, to exit at a better return than the average investor.

GEMS is up against significant competition from other bigger institutional investors who are also in the race for pre-IPO placements and have been bidding up valuations. However, Kotak PMS intends to focus mainly on the smaller listed companies, which are usually not in the radar of the bigger players. As investments will be made in only listed companies, GEMS is certain of having an exit option at any time. Its strategy is therefore, less risky than private equity investments, where liquidity is not assured. Also, while GEMS can invest up to 30 per cent of its assets in such opportunities, it will do so only if it finds the offer price attractive from a valuation perspective.

Suitability: GEMS will adopt a more concentrated portfolio compared to the average diversified equity mutual fund. In terms of risk profile, GEMS will be more risky than a diversified equity fund but less risky than a sector fund.

The product is positioned at investors with a slightly aggressive risk profile and for those with a long-term perspective. As the scheme is closed-end, investors cannot exit the scheme before 30 months or can do so only if they are willing to bear a stiff exit load.

Product details: The minimum investment amount in the scheme is Rs 10 lakh. Kotak Securities’ PMS division has recently begun to offer products at the Rs 10 lakh investment bracket; some of its earlier products require a minimum ticket size of Rs 5 crore. Some of its other offerings in this Rs 10 lakh bracket include Origin and Select Portfolio.

GEMS will follow a variable fee structure. The detailed break-up of this fee has not been disclosed. Typically, a variable fee structure in PMS products involves a small fixed fee element and a profit sharing agreement beyond a target return. Subscription to the scheme closes on February 15.