While the early-launched closed-end mutual funds ones delivered, some seem to be lagging behind their peers and benchmarks
Kayezad E. Adajania | First Published: Tue, Mar 14 2017. 05 40 PM IST | LiveMint.com
It has been almost 3 years since the first wave of closed-end funds was launched. From the first such scheme—IDFC Equity Opportunity Fund-Series 1 (IEOF1)—which was launched in April 2013, the Indian mutual funds industry has launched over 100 closed-end funds till date. Collectively, they have collected Rs18,000 crore. Closed-end funds came with a promise of giving better returns than open-ended funds. Although most of the closed-end funds are still serving time, we think it’s a good time to check how they have done so far.
Mixed bag performance
At a broader level, closed-end funds have failed to impress. Over the past 2 years, closed-end funds in the mid-cap space returned 3.23%, while open-ended schemes returned 4.72% (see table). Over the last 2 years, many closed-end funds too have completed 2 years.
Some managers of these funds could claim, with some justification, that their mandate—as defined by the Scheme Information Document—is to beat their benchmark index, not their peers. But did they score on this count?
About 65-85% of the large-cap, multi-cap, mid-cap and small-cap schemes have beaten their benchmark indices. But these numbers aren’t so great numbers if you dig a little deeper. Schemes like Sundaram Select Micro Cap – Series I, Sundaram Select Micro Cap – Series III and Reliance Capital Builder-Series A outperformed their benchmark indices, but came in the bottom quintile of the small-cap category.
Sunil Subramaniam, chief executive officer, Sundaram Asset Management Co. Ltd, said: “I am not sure if our schemes have been compared to the correct set because our micro-cap funds have been very thematic. For instance, our first few series focused on multinational companies, the next few focused on cyclical industries and so on.”
Then, there are schemes that have underperformed their benchmark indices as well as their category averages. “Our scheme’s benchmark index consists of larger-sized mid-cap scrips, while the fund itself goes for small-sized companies. The share prices of underlying companies of the benchmark index have risen (more), as compared to the companies that our fund holds,” says a fund manager of one such scheme who did not wish to be named because he says the closed-end tenure is not yet over and comparing the fund at this juncture ‘wouldn’t be fair.’ He justified the stock selection saying: “Our set of companies do well, typically, when there is a secular bull run, as opposed to flat markets that we’ve seen recently.” Time will tell if his claims come true.
Experts say that closed-end funds have performed in pockets. “Schemes that focus on mid- and small-cap scrips can adopt a ‘buy and hold strategy’ as there is no continuous inflow or outflow,” says Kunal Valia, director, Credit Suisse Securities India.
The challenge of timing
In 2013, when equity markets were at low on the back of policy paralysis, and little government- and private-sector spending on the back of corruption allegations at the time, some fund houses saw an opportunity.
The anticipation was that a new government in the Centre would revive the economy. True to expectations, the Nifty50 went up 29% between June 2013 and 16 May 2014, the day election results were announced.
Most of the schemes launched until then did well. ICICI Prudential Value Fund – Series1 (launched in October 2013) and ICICI Prudential Value Fund – Series2 (launched in November 2013) have returned around 22% and 23% respectively over the past 3-years and are in the top quintile of multi-cap funds. But getting the timing right was not the only factor in their favour. “The outperformance is mainly on account of skill of the fund manager, ability…to identify under-researched and under-owned ideas…and no pressure due to inflows or outflows,” says Valia.
The dividend promise
Some closed-end funds, particularly the earliest ones, aimed to pay dividends as regularly as possible. “During 2007-09, equity markets went up and then crashed. People made profit, theoretically, but never encashed them. The ensuing fall eroded their profits. So when we launched closed-end funds, we decided to book profits and pay dividends as much as we can,” said S. Naren, chief investment officer, ICICI Prudential Asset Management Co. Ltd.
Did they live up to their promise? A Mint study of open-ended and closed-end funds between 2013 and now shows that many of the closed-end funds did pay dividends (see table). If you rank the funds in terms of the dividends paid between 2013 and now, top 13 out of the 20 funds were closed-end.
What should you do?
Manish Gadhvi, head (Mumbai operations), NJ India Invest Pvt. Ltd, one of India’s largest retail mutual fund distributors, says that closed-end funds makes sense if picked well. “Retail investors tend to misbehave on both sides of volatility—upside and downside. If, say within 6 month, markets go up by 30-35%, they redeem. If markets drop by 25%, they redeem. But if you follow a micro-cap stock-picking strategy, your stocks can go up by 200-300%. Hence, closed-end funds aren’t totally a lost cause,” he says.
A big drawback in closed-end funds is the absence of track record, says a senior research analyst at a bank, whose bank had launched some of these closed-end funds, though he claims to have not recommended any: “There is no fundamental research on how this fund has performed. There is no evidence of its performance because there is no past performance.”
It’s too soon to decide whether the current breed of closed-end funds have worked out or not, as the evidence so far is patchy. It’s safer to stick with the tried and tested open-ended funds, which come with a track record—unless a closed-end fund offers something that no existing fund offers.
Source : https://goo.gl/PAJGx7
Creditvidya.com | Updated On: March 28, 2015 17:56 (IST) | NDTV Profit
Warren Buffett is undeniably the most successful investor in history. His success is attributed by some to his sharp acumen and understanding of business while others call it luck. Numerous books have been written in an attempt to analyse the factors behind his extraordinary success. However, replicating similar results is no cakewalk.
Success at Mr Buffett’s rate is not a result of following a set formula. It was a continuous process which was followed. Discipline, perseverance and effective execution play a pivotal role in his success story.
Here’s a list of key factors which led to Warren Buffett’s coveted success:
Chalk up a plan
While making an investment, it is important to set a goal. Invest in value and be patient. Quoting Buffett’s famous words, “The stock market is a device for transferring money from the impatient to the patient.” So once your homework is done and a choice is made, stick to your plan.
Invest in value
“Price is what you pay, value is what you get,” Mr Buffett has said. Whether it is going in for an investment or making any other purchase, these words ring true. Looking for value is the underlying principal to be followed.
‘Plough back’ to reap benefits
Retain the earnings and invest them back into the business. The idea is to make the business grow and sustain. If earnings are taken home as dividends from a flourishing business, it does not help the very business which helps your earn and grow. Dividends are popular but they shouldn’t be the only thing one must have an eye on. It is important to track the utilisation of funds back into the business to continue growing.
Strategize and execute
When it comes to investments, figure out the cash in hand and the fixed income sources you may invest in. The returns must be enough to sustain your current lifestyle. After this is sorted, money can be invested in other options which have a possibility of high returns against high risk. The strategy adopted must ensure that investment options are balanced. As Mr Buffett has said, do not put all your eggs in the same basket.
‘Time is money’ and has to be managed accordingly
Warren Buffett has said: “The rich invest in time and the poor invest in money.” Time indeed is one commodity equally distributed to everybody. Tasks which were not related to his investment process were either delegated or eliminated. Time and energy spent on trivial tasks can be channelised on the ones topping the priority list.
Develop managerial skills
A manager sets goals for the team and drives them to achieve the goals. Keeping the team motivated, providing appropriate financial incentives and addressing any other concerns to the team’s satisfaction are few things one’s where managerial skills are put to the test. Not everybody is born as a good manager, but these skills can definitely be developed.
Learn, read, think
Warren Buffett has said investing in self is the best thing one can do. Nobody can take away talent from a person. Irrespective of economic conditions, talent will always fetch proportionate returns. The value does not deteriorate. Hence, it is important to invest in developing one’s skills. Staying updated helps one make intelligent decisions. In Mr Buffett’s wise words: “You can’t reach success in investment if you do not think independently.”
Create more than one source of income. Do not depend on your job alone. Make investments to create a second source of income. Think twice before buying anything. Retail therapy does not really help in the long run. If one continues to buy things that are not needed, there will be a stretch situation someday for making necessary purchases.
Diversify the portfolio. It is important to balance investments on basis of fixed income, returns and risks. Also, tread cautiously while taking risks. In Mr Buffett’s words: “Never test the depth of river with both feet.” This means you should only invest in the businesses you understand completely.
Be your own adviser
Many people make investment decisions based on other people’s opinions. This kind of an investment is the most risky investment irrespective of the option chosen here. The investment option chosen by a friend may be best suited for his/her lifestyle and future plans. But that does not necessarily make that option a good fit for you. So think for yourself, seek clarity on your goals and then make a wise investment choice. Like Mr Buffett has said, “A public-opinion poll is no substitute for thought.”
These rules inspired by Mr Buffett should help you in making your money-related choices. There are two golden rules quotes by Mr Buffett: “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
Source : http://goo.gl/i9zdpt
M Allirajan, TNN | Mar 25, 2015, 12.18AM IST | Times of India
Dividends in mutual fund (MF) schemes are getting bigger. The strong rally in markets has prompted fund houses to offer higher payouts for investors — as high as 85% — with even balanced funds that invest a portion of their corpus in fixed income giving payouts.
Equity-linked savings schemes (ELSSs) have been the most prolific in offering dividends as they compete to garner funds from investors who rush to buy tax-saver instruments just before the close of the financial year to lower their tax burden. As many as ten ELSSs, or tax-saver equity MFs, have declared dividends since early March.
Religare Invesco’s Growth Fund has declared a dividend of Rs 8.5 per unit, or 85%, the highest for the 27-month-old fund. HDFC Taxsaver Fund has offered a dividend of Rs 7 per unit, the highest since 2008. SBI Magnum Taxgain Fund has given a similar payout, which is also the highest in seven years. These funds have gained 50.4-53.2% in the last one year.
“The ability to pay dividends is quite high as there has been a significant increase in NAVs (net asset values) in the last one year,” says Chandresh Nigam, MD & CEO, Axis MF.
Vetri Subramaniam, chief investment officer, Religare Invesco MF, adds, “We have seen good profits and are distributing it to investors. Most funds were not able to pay dividends properly in the last few years because there were no incremental profits.”
In fact, equity MF dividends had dried up between 2010 and 2014 as the markets remained tepid. Several schemes did not pay dividends during this period because they did not have enough incremental profits.
Equity-oriented balanced funds, which have seen strong growth on the back of surging markets, are also rewarding their investors. While Kotak Balance Fund is giving a dividend of Rs 3 per unit, HDFC Balanced Fund is offering Rs 2 per unit. This category of funds has gained 41.1% on an average in the last one year.
Source : http://goo.gl/nL7LBZ