Sundaram BNP Paribas Mutual Fund's new fund Sundaram BNP Paribas Equity Multiplier Fund is a closed ended equity scheme with a maturity of 3 years with automatic conversion into an open-end scheme upon maturity. The scheme will invest across sectors and capitalization in those stocks, which the fund manager and his team find promise in.
However, S Vaidya Nathan, Head - Product Management highlights that though the fund concept might appear to be a regular multi-cap fund, it is designed as an aggressive product that will go-anywhere in search of returns, and it may at times be only in one market-cap category.
"The fund will also focus on a few ideas and take concentrated exposures. The portfolio may not always sport a diversified look. The fund aims to generate optimum positive returns. The portfolio manager will also take active cash calls and derivatives if market conditions warrant. The focus may also be on stocks that are not fancied for a variety of reasons. These are a few aspects that will set the fund apart from multi-cap funds", Vaidya Nathan adds.
Experts believe that two additional factors set this fund apart from its peers - the first being that the scheme has an upper limit on the amount it plans to raise, and the second attractive feature of the scheme is that it makes redemptions very expensive.
Cap of Rs 500 crore - How will this help the fund?
The fund will raise a maximum of Rs 500 crore (Rs 5 billion) with an option to retain 10 per cent of the maximum limit (i.e Rs. 50 crore), totally aggregating to Rs 550 crore. What this does is that it will limit the assets under management of the scheme.
Investment experts Sandeep Shanbhag says, "We have seen in the past that funds with good track records attract more and more investments thereby growing too big and unwieldy in size. As the scheme keeps growing, finding additional opportunities for deploying the fresh inflows becomes difficult and gradually this starts affecting the overall return." "Maintaining a tight leash on the assets under management will augur well for investors in Sundaram BNP Paribas Equity Multiplier Fund", he adds.
Expensive redemptions - What does this mean?
The scheme offers exit options every six months, but exiting the scheme early can turn out to be a costly affair on account of the steep exit load (4 per cent) built in for those wanting to exit. Other than this the investor will also have to bear the unamortized issue expenses charge. "What this clearly tells us is that the mutual fund has built in features to ensure that only investors who can lock away their money for three years, invest", says Shanbhag.
Vaidya Nathan supports the view as he says, "The load structure and one-day window is to make it clear that we seek only investors who can remain invested for at least three years and preferably five years. The exit facility is only to provide an exigency that may confront investors."
Who can invest in Sundaram BNP Paribas Equity Multiplier?
Advisor Hemant Rustagi believes that a concentrated portfolio as that of Sundaram BNP Paribas Equity Multiplier can be riskier compared to a well-diversified portfolio and hence may not be suitable for every equity fund investor.
Sundaram MF supports this view as Vaidya Nathan emphasizes that investors clearly should allocate only a small part of their portfolio to this product. The fund is appropriate for investors who:
- Have a high-risk appetite
- Understand the risks involved
- Seek an aggressive equity fund that could boost overall portfolio returns
- Have the ability to absorb risks of investing in mid and small-cap stocks
- Seek long-term capital appreciation to meet financial goals
- Have a sizeable allocation to equity in their portfolio
- Have an investment horizon of at least three years and preferably five years
- Allocate a part (say 5 to 10%) of their equity exposure to the fund
Sundaram BNP Paribas Equity Multiplier Fund is positioned at the top end of the risk-return spectrum of Sundaram BNP Paribas products. Hence, experts believe that on account of the inherently risky nature of the product, investors should carefully gauge their risk taking ability before investing.
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