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.
