Font Size 
Think before invest in close-ended funds
Published on Thu, Sep 21, 2006 at 11:57, Updated on Thu, Sep 21, 2006 at 12:06 in Money » Tax section
Tags: Mutual Funds, Open-ended , Mumbai
Related Stories
Satyam off Nifty from Jan 12 | Off NYSE too - Bleak future: What next for Satyam?
- Satyam stunner: Highs and lows of Raju's career
- Satyam's crack team | Directors shocked | Timeline
- Pak sacks NSA | | He spoke too soon | What Pak says
- Terror dossier: India uncovers 26/11 money trail
- BJP avoids Advani vs Shekhawat battle before polls
- Mumbai terrorists had British link: MI5 chief
- One more Noida gangrape accused arrested
- England cricket in turmoil; Pietersen, Moores quit
Photogallery
 |  |
Mumbai: The almost-dead close-ended equity funds are making a comeback in the Indian market.
The mutual fund industry did begin its innings in India with close-ended equity funds. But after the initial euphoria, almost all of them ended as unmitigated disasters. As a result, the MF industry remained inconsequential for a long time.
The first sign of the industry’s revival came with the introduction of open-ended funds. Since then the industry has grown quite admirably. In fact a lot of the earlier close-ended funds have since been converted into open-ended ones.
Given the fact that things were going so well for the industry with the open-ended funds, why this sudden about turn. Why is the MF industry suddenly launching mainly close-ended funds, which were earlier resoundingly rejected by investors?
The reason is not far to seek. The answer lies in the recent changes brought in by SEBI as regards the appropriation of the issue expenses of a New Fund Offer.
Before the SEBI circular came in, the MFs were allowed to write-off issue expenses of a New Fund Offer, from the fund, over a period of five years. Therefore, marketing expenses on new funds, usually about 6 per cent of the corpus raised, were incurred and written-off from the fund over the next five years.
Since, these expenses were written-off over a period, the NFOs could open at par. Also, quite a few of them were introduced with no up-front entry load.
With the new guidelines, this has been stopped. Now in an open-ended NFO, all the expenses have to be either met out of the entry-loads or netted off from the fund on day one.
It is difficult to assume that anyone would be willing to pay 6 per cent entry load, especially after being used to the so-called no-load funds.
As a result, an open-ended NFO will always open at NAV below Rs 10. This will attract the ire of the investors and they will, over a period of time, stop investing in NFOs. Or alternatively, the AMCs would have to bear such expenses, eating into their profits.
Since the rules of the game have not changed for close-ended funds, there is a sudden newfound love for such close-ended NFOs.
[ Single Page View ]
| Ads by Google |
| Related Ads: | |
Read Comment | Post Comment
Be the first to comment.