Tata Mutual Fund has launched Tata Capital Builder Fund, TCBF, a 3-year close-ended fund, which will be converted into an open-ended scheme after that period. The scheme aims to build a diversified portfolio of fundamentally strong high growth companies, which have earnings visibility over the next few years. Apart from this, there is an exit opportunity for investors on a weekly basis, after payment of an exit charge.
Tata Mutual Fund is optimistic about its new product, however, others are not so positive.
For instance, financial expert Sandeep Shanbhag feels that though TCBF is theoretically close ended, the weekly exit option literally robs the fund and investors of the inherent benefits of a close-ended fund.
Shanbhag says, "Close-ended funds offer fund managers greater leeway in fund management as there are no worries of funding daily redemptions. However, even with weekly redemptions (as in the case of TCBF), the fund manager will be precluded from taking long-term calls."
"While it is true that investors opting out of TCBF before the three year period is over will have to bear the unamortized expenses, which will act like a load, TCBF could very well have launched an open-ended scheme and actually charged a similar load. The average load that an equity scheme charges is around 2.25 per cent - however SEBI allows the load to be as high as 7 per cent," he adds.
However, Ved Prakash Chaturvedi, MD, Tata Asset Management clarifies, "Our experience in the past has been that most investors coming into a fund like this do not want to exit under normal circumstances. However, a handful of investors may have an emergency of some nature and may want to exit, and the fund provides for an exit opportunity for such investors.
"If an investor has a dire emergency in the family and needs the money back, would it be a better option for him or her to wait for 3 months or 6 months to get this money back or as in this case to be able to get it back within a shorter timeframe to meet these emergency requirements? On these considerations, the fund has kept a particular timeframe of weekly exits, based on extensive investor feedback as well as our own experience in the past with respect to such emergencies."
TCBF intends to invest in companies across large, mid and small market capitalization. So, how is it different when compared with the many other plain vanilla equity schemes already on offer, ask experts.
Chaturvedi says that it's the close-ended nature of the scheme that makes it different from other equity-diversified schemes. He said, "In our experience close ended funds provide the opportunity to the fund manager to invest in a diversified basket of companies with a medium term objective."
However, advisor Hemant Rustagi feels that the general perception that close-ended funds yield better returns than open-ended ones, does not hold true in all market conditions. For eg - As on July 21, 2006, the 1-year average return for equity diversified funds was 23 per cent, while that for ELSS funds - which are 3-year close-ended schemes providing tax benefit, was just 17.8 per cent. Also the 5 year average return for equity-diversified funds was 35 per cent, while that for ELSS funds was 34 per cent.
Chaturvedi counters it as he says, "ELSS funds are tax planning oriented funds and we recommend that investors put only the tax planning oriented money in ELSS funds."
"Tata Capital Builder Fund is basically positioned for the future economic potential of India's growth. We believe that the Indian economy has good long term potential and has hence a value proposition for investors who have patience for the medium term. The current volatile market would provide opportunities for entry for these investors", he adds.For more on mutual funds, click here
