As market is in uptrend,there are raining New Fund Offers – especially closed ended with period ranging from 03 to 05 years.At maturity investors have options like automatic withdrawal as per prevailing NAV or switch it to other fund of same AMC. Though prior experience of 2008 is not good,most of the AMCs believe that there will be different story as both fundamental and technical attributes are different this time.
Its true that such NFOs have its own Pros and Cons.Here we have listed few positives of Closed ended NFOs.
Portfolio Of Low liquid But Fundamentally Strong Companies:
In open ended fund,its difficult for any fund manager to allocate significant part in Illiquid stocks.If there is significant redemption amount to obey and manager sold out even some part of holding then one can see significant drop in stock price.For closed ended scheme fund manager will not have any such pressure and its possible for fund manager to allocate significant part in not much known but fundamentally strong companies.
Strategic Allocation :
There are different opportunities at different times and different levels.Complete portfolio makeover is difficult for any open ended fund.Based on todays parameters and opportunities manager can allocate funds strategically in closed ended funds.
Focused & Compact Portfolio:
Most of the funds have 25-40 stocks in portfolio and can be considered as compact or focused portfolio…allocated with defined time constrains. rather buying stock from market its fair to invest in NFO.
Being new funds these fund will not have any track records but most of the times managers are enough experienced.One can think to invest if he /she is really convinced with growth story for next 3-5 years and have target period at least equivalent to period of scheme.
Risk Factor: we have highlighted few positives of closed ended NFOs but one should note —–Though there is positive sentiment ..there is shift of Risk Levels after recent rallies.Don’t invest merely based on performance based on last one year.
Currently Open NFOs:
- Reliance Capital Builder Fund Series -B.
- Sundaram Select Micro Cap Fund Series – V.
- UTI Focused Equity Fund.
- ICICI – Prudential Value Fund Series – 5.
