Birla Sun Life Mutual Fund has launched a five-year close-ended fund -- the Birla Long Term Advantage Fund, BLTAF.
Its investment objective is to seek long-term capital appreciation by investing predominantly in a diversified portfolio of equity and equity related securities.
The scheme offers a monthly exit option wherein units in the scheme may be redeemed in the first five working days of every month.
Experts believe that close-ended funds enable the fund manager to take long-term calls without having to worry about keeping a portion of the funds in cash to fund continuous repurchase.
Also, the portfolio turnover of a close-ended fund is lower as compared to open-ended funds, and a lower portfolio turnover means lower trading costs, which over a five year period could prove substantial.
Investment expert Sandeep Shanbhag commends Birla MF for launching a close-ended scheme in the real sense of the term. He said, "Most fund houses have been launching close ended schemes, which remain close ended for a specified amount of time and then turn open ended. Some have gone to the extent of offering weekly exit options. This goes against the very idea of a close ended fund and for all practical purposes, these become open ended funds operating under the guise of close ended."
Investment expert Hemant Rustagi feels that being a closed ended scheme, BLTAF would encourage investors to have a long-term view, and prevent them from making the most common mistake of reacting in a panic manner by trying to time the market.
However, on the flipside, Rustagi feels that in terms of objective and philosophy, the fund is no different from some of the existing open-ended schemes of the same fund house. Also, being a closed ended fund, all those investors who may like to invest on a regular basis do not have this facility here, he added.
But, Ajay Argal, Fund Manager of Birla Long Term Advantage Fund clarifies, "The fund is recommended for people who wish to take a long term view of the equity markets. While the objective and philosophy is no different from open ended schemes the treatment of portfolio is quite different from open ended as fund managers are able to construct the portfolio with 4-5 years horizon and not rely heavily on current performers."
Shanbhag feels that monthly exit option offered by the scheme could also be a negative for the scheme.
However, Argal clarifies that this is as per Sebi guidelines. He said, "Sebi prescribes that even closed ended funds should give limited opportunity to investors to liquidate their investments."
Experts conclude that investors wanting to gain the most of their investment in BLTAF should ignore the monthly exit option and stay invested with the fund for full five years to realise the full potential of a close-ended fund.
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