Skip to main content

90% of closed-end funds do not trade

Absence of market maker that can ensure discount for investors hits fund schemes

TRADING in closed-end schemes of mutual funds, which are mandatorily listed on stock exchanges following the Securities and Exchange Board of India (Sebi) order in December 2008, remains virtually non-existent with barely a handful of funds witnessing any kind of trading volume.

According to Value Research data, only 13 out of 140 closed-end schemes have seen some or any kind of trading in the bourses ever since the Sebi order came into force. The average daily trading in these schemes have been just a meagre 25,000 units, according to figures available from January 2009. However, the daily trading figure swings between just one unit of a particular scheme on a particular day to over 300,000 units of some other scheme on a day.

Experts say the trading in these mutual fund schemes have failed to pick up because of lack of demand in absence of a market maker that could offer the schemes to buyers at substantial discount. Some experts also attributed the poor response to losing charm of closed-end schemes, especially fixed maturity plans (FMPs).

Alok Singh, head of fixed income, Fortis Mutual Fund, said most of the closed-end schemes are FMPs and because of strict Sebi norms, FMPs have lost the attractiveness they used to have earlier. Sebi has barred FMPs from giving indicative returns and also stopped investors from premature exit.
"In the past couple of months, many fund houses have again lined up a few fixed maturity plans and once more funds are there in the secondary market, trading could pick up," he said.

Dhirendra Kumar, CEO of Value Research, a mutual fund tracker, told FC that the basic idea behind listing of such funds was to stop the practice of premature exit from these closed-end funds and yet make them liquid. "The listing provided an emergency route to exit for investors, who are in urgent need of money, and hence can sell their units in the secondary market," he added. However, he said that in absence of enough buyers and sellers, the trading volume in these funds remains very low.

The CEO of a fund house said until financial intermediaries market the schemes aggressively and provide the funds at a substantial discount to buyers, volumes would be hard to come by.
"Although, the main purpose of the listing was to make these funds more liquid, the idea remains a non-starter in the absence of any incentive to market makers that could pitch these products in the market," he added.

 


Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now