Home / Money / Personal Finance /  IDFC MF fumbles, asks for rollover for Opportunity Fund

Despite the recovery in the relevant benchmark indices to all-time highs, mid- and small-cap-tilted mutual funds launched in 2017 continue to bleed. IDFC Equity Opportunity Fund Series 4, one such closed-end scheme, which was launched on 29 December 2017 and is set to mature on 4 January 2021, has delivered a compounded annual growth rate (CAGR) of -11.15% since launch (around -30% cumulatively) as of 25 November, according to data from Value Research. In comparison, the BSE 500 (Total Returns Index) against which the Opportunity fund is benchmarked, however, delivered a CAGR of 5.48% since the fund’s inception and almost 20% cumulatively.

The asset management company (AMC) has written a letter to investors asking for a two-year rollover or extension of the scheme. The letter cited a fall in India’s gross domestic product (GDP) growth as the reason for its lack of performance. However, growth may recover by the second half of FY21 allowing the fund to recover too, the AMC added in the letter. The scheme has assets under management (AUM) of 183.68 crore, as on 18 November.

“The country’s GDP growth which was 7-8% at the time of fund launch in December 2017 unfortunately fell to 4-5% growth over CY18-19 before coming to a grinding halt in March-May 2020, resulting in GDP contraction for CY20. Also, (the Reserve Bank of India’s) monetary policy from January 2018 till March 2020 has been neutral to tight. This has impacted the smaller companies within the portfolio, as the small-cap segment had seen multiple contraction during the same period. The above impacted the performance of the fund in tandem with the sectoral index," IDFC Mutual Fund said in an emailed response to Mint. The BSE 500 (TRI)’s performance, however, is in the positive territory, in the corrsponding period, as mentioned earlier in the story.

The AMC went on to outline reasons for being positive on the future trajectory of the fund, including festive season helping stimulate demand, the third and fourth quarters being strong execution quarters for infrastructure companies, pent up pipeline of projects and the possibility of any success in the discovery of a covid-19 vaccine.

“Moreover, India, thankfully, has appeared to be on a different trajectory regarding covid-19 cases as compared to the US and Europe. This has further boosted hopes for a quicker recovery to pre-pandemic levels than was being forecasted a quarter ago," IDFC MF’s email to Mint added.

However, experts suggest a cautious approach while investing in closed-end schemes, particularly when valuations are stretched.

“The starting valuations of the fund matter a great deal. Mid- and small-cap valuations were highly stretched in late 2017. Also, investors should avoid closed-end funds unless they are completely unable to control their own behaviour with open-ended funds. If you are invested in this fund and are being offered the chance of a rollover, do not take it. You will be able to find better opportunities elsewhere," said Amol Joshi, founder, Plan Rupee Investment Services, a mutual fund distributor.

If you are an existing investor, consult your adviser before you make any decision.


Neil Borate

Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
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