Arvind Paranjape

Author of books on Investment

Blog posts : "Investment"

Close Ended Equity funds

Every investor attempts to “buy low and sell high” in the share market to make a profit. However, the continuously rising share market is not giving much opportunity to invest. BSE senesex was 21000 in Jan 2008. After the market got the hint of the NDA’s victory, it is continuously rising and making new highs every day.

Even though it has crossed 28000 mark experts are of the opinion that there is still steam left and investors can look forward to make decent returns if they invest wisely.  A section of the investors are feeling left out and are still waiting for the opportunity. However, they should understand that taking no risk is also a risk!  It is very difficult (impossible?) to time the market meaning getting the low and high points of purchase and sale. They are well advised not to wait or choose for “best time” and enter whenever there seems to be opportunity. For a large section of investors, mutual funds is easy and effective way of investing. Apart from the regular open ended equity schemes, attention is drawn to close ended schemes which are open for specified periods. Following schemes is now open.

 ICICI Prudential Growth fund Series 5 :  Last date 15th December

The mutual fund managers are optimistic about the macro management of the present government. They cite a number of favourable factors for investment climate. Some of them are:

a.       Decisive mandate for a single party

b.      Strong Government with able prime minister functioning like a CEO

c.       Competent team of ministers for the key portfolios

d.      Suitable economic policies  with an urgency to resolve the problems in time bound manner

e.      Inflation seems to be under control.  Thanks to the falling international crude oil prices

f.        Under control current account deficit and fiscal deficit

g.       Stable exchange rate

h.      Possibility of rate cut in next 6 to 12 months by R B I

Seeing the past 1 year’s return, the retail investor has started investing now in equity schemes. However he has to have reasonable expectations as same returns may not be achievable now. We know that the share market is no longer cheap as it was 6 months ago. However according to the  fund managers of these close ended schemes there are still opportunities where they can find the value and chance for appreciation. They will endeavour to select the companies which have good businesses, competent promoters, good corporate governance, earnings visibility, turnaround possibility, operating leverage advantage etc. which can outperform the market in next 3 years.  It is difficult to track mid cap, small cap and micro-cap companies for an individual as sufficient information is not available in the public domain. Mutual fund managers are better equipped to do the analysis and by using the proper stock selection processes, they have been able to beat the index consistently.  It is not correct to judge an index in absolute number. 28000 is definitely higher than 21000, but its valuation is still in the fair region. One has to see its valuation before investing. Next 3 years’ snesex EPS is likely to grow at 19% per year compared to mere 7% from 2008 to 2014. We know that earnings is the biggest factor affecting the share prices. With the likely improvement in the earnings in future, investors having the risk appetite and who are ready to lock the funds for 3 years, they can consider investing in these schemes.

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