Redemption time for MS growth fund

Morgan Stanley Mutual Fund’s flagship equity scheme — the close-ended Growth Fund launched in January 1994 — is set to become open-ended
from January 15, 2009. A senior official of the fund house said the scheme would come up for redemption from next week. In line with the Sebi guidelines, existing investors will be given an option to redeem the fund at the current net asset value (NAV) without any exit load. They can remain invested or switch fully, or partially, to the only other scheme managed by the fund house, ACE. At compounded annual growth rate of 10.6% since inception, unitholders of Growth Fund are likely to be, mildly put, disappointed. The stock does not figure in the top 10 list of best-performing funds which were launched around the same time as the Growth Fund. It would be all the more frustrating for unitholders, considering that most of the best-performing schemes were open-ended schemes, which are prone to sharp swings in their net asset values due to sudden inflows and outflows of funds. In theory, a close-ended fund is expected to fare much better because of its stable pool of corpus. Currently, the fund commands a net asset value of Rs 29.3, after touching an all-time high of Rs 74.1 in January 2008, when the market was at a record high. Thus, had the fund opened for redemptions then, the investors would have gained much more than what they are bound to get now. “At best, Growth Fund can be termed as an average fund in its long history of 15 years...it will be a huge disappointment for all initial investors,” said Value Research CEO Dhirendra Kumar. A grey market for a close-ended mutual fund scheme may sound ridiculous. But that was the situation when Morgan Stanley launched the Growth Fund. Call it investor ignorance or pure mania, but it is unlikely that a mutual fund scheme in India will ever capture the imagination of retail investors the way IGF did at that time. Newspapers prominently displayed pictures of unending queues of investors patiently waiting to buy the form for the scheme, for many of whom it had almost become a “prestige issue”. Unfortunately, an overwhelming number of investors had mistaken IGF for an initial public offering, whose units would list at a premium to the par value at which it had been offered. The fund quickly became an icon of disappointment when the NAV fell below par on day one. What may have worked against Morgan Stanley was the rule at that time, which required it to invest all its funds within six months. It eventually ended up buying a lot of illiquid mid-cap and small-cap stocks.

Source : The Economic Times