Closed-end equity funds have historically been popular with mutual fund companies. However, despite the massive recovery in the stock market over the past year, many of these launches have underperformed brilliantly.
In a notice issued Thursday, the Aditya Building La Sun Life Asset Management Company announced the merger of the Aditya Building La Sun Life Resident India Fund Series 7 and the Aditya Building La Sun Life Equity Adity Fund. This year it has risen 69%, but the Series 7 scheme has risen only 5% since it was launched in April 2018 (as of September 1st).
By comparison, the S & P BSE 500 has a compound annual growth rate (CAGR) increase of 15.75% over the same period.
Existing unitholders are given the option to end by October 4, the maturity date of the scheme.
That is not the only such scheme. In November 2020, the IDFC Mutual Fund called for a “rollover” or extension of a closed-end fund called the IDFC Equity Opportunity Fund Series 4, which was launched in December 2017. ) Compared to 5.48% of S & P BSE 500 as of November 25, 2020.
A closed-end scheme is an investment trust with a defined entry date and maturity date. However, these dates may not match the market cycle, and in some cases, maturity dates can occur during significant performance degradation.
In terms of debt, closed-end funds are also sluggish. The Kotak Mahindra Asset Fund was forced to extend its Fixed Maturity Plan (FMP), which had exposure to Essel Group companies in April 2019. This was a fine for Sebi last week.
In connection with Aditya Building La Sun Life Resurgent India Fund Series 7, Chief Executive Officer A. Balasubramanian said: Integrating with one of the open-ended funds to continue investing in diversified equity funds is nearing maturity. “
Amol Joshi, founder of Plan Rupee Investment Services, emphasized the dangers of the scheme launching near the peak of the market. In 2017-18, we recorded peaks in the mid-cap and small cap segments compared to large cap companies. Soaring stock prices have stopped some fundhouses from flowing into medium- and small-cap schemes.
For example, the S & P BSE Small Cap 250 rose 57% in 2017, raising a large amount of money in such funds.
This was followed by a two-year negative return, with the index down 23.62% in 2018 and another 8.44% in 2019.
“Investors need to stay away from closed-end equity funds. They have no advantage. It also means that mutual funds launched at the peak of the cycle will last for many years, even if the market recovers. It emphasizes the fact that performance can suffer over time, “says Joshi.
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