Mutual fund public offers a huge draw

Fund houses mobilised over Rs 6,000 crore in the last one year

A trend evident in recent times in the Indian mutual fund industry is the mega-subscription to equity fund initial public offers (IPO).

On a rough estimate, equity fund IPOs have mobilised more than Rs 6,000 crore in the last one year and quite a few of the fund houses which floated IPOs are still in the process of adding up their final collection figures.

Market sources said that while most funds have managed to outperform the Bombay Stock Exchange (BSE) Sensex in the period since they were floated, their performance over a longer period of time is a matter of speculation.

Surprisingly, some funds with very good performances have also seen big redemptions as investors have opted to switch from proven performance to the lure of a fresh offer "at par", market sources said.

Most industry sources agree that subscriptions to a mutual fund IPO do not provide any additional benefit to an investor compared with an existing scheme, but the lure of getting units at par in a rising market has become too hard to resist for common investors.

Here is a survey of the performance of some diversified equity fund IPOs launched within the last six months.

According to data from MutualfundsIndia.com, Franklin Flexi Cap Fund, which mobilised a record Rs 1,950 crore, has seen its net asset value (NAV) fall to Rs 9.92 as on March 16, 2005.

Tata Infrastructure Fund, which raised more than Rs 770 crore, has a NAV of Rs 10.78, ABN Amro Equity Fund, which collected about Rs 350 crore via IPO, has a NAV of Rs 13.70, HDFC Core & Satellite Fund, which mobilised Rs 400 crore, has a NAV of Rs 12.58, Principal Dividend Yield Fund, which collected about Rs 350 crore, has a NAV of Rs 11.62, Pru ICICI Emerging STAR Fund has a NAV of Rs 12.35, Kotak Midcap Fund has a NAV of Rs 10.30, Sahara Midcap Fund has a NAV of Rs 10.62, Sundaram SMILE Fund has a NAV of Rs 10.38 and Chola Multi Cap Fund closed with a NAV of Rs 10.85 as on March 16, 2005.

According to fund analysts, the investors must look at the performances of these schemes over a period of time before comparing them with the older and more established ones.

They added that investors must look to invest in schemes with a strong record for performance and if the performance of new schemes doesn't match up to industry benchmarks, they must look to switch to better performing funds.

In the last few months, despite mobilising huge assets, the mutual fund industry has not seen much of a growth in its net asset under management (AUM) due to redemption pressure.