Mutual Funds
Review of SBI Equity Opportunities Fund

Close-ended scheme are usually not worth it. What about SBI Equity Opportunities Fund?


SBI Mutual Fund has launched SBI Equity Opportunities Fund, a three-year close-ended scheme. The new fund offer for the second series of this scheme will close on 1 December 2014. SBI Equity Opportunities will invest in a diversified portfolio of stocks across all market-cap and sectors. There is nothing unique about the investment strategy or the portfolio allocation. The scheme will invest 80% or more in equity and the rest in debt and money market instruments. From the beginning of 2014, as many as 27 equity diversified close-ended schemes were launched (including the different ones in a series). A few are in the pipeline.


Fund houses prefer to launch close-ended schemes as the assets are locked-in for the tenure of the scheme. However, for the investor, such schemes turn out to be illiquid. Even tough close-ended schemes are listed on the exchange; there is hardly a market of buyers and sellers for such schemes.


Moneylife has mentioned several times in the past, the performance of close-ended schemes depends on the market conditions at the time of investing and at the time of maturity. If you invest in a period where the markets command a high valuation, chances are that the market may head lower and if the market conditions do not improve, you may end up with a fairly low return or even a loss at maturity. Being close-ended, you will not be able to invest systematically. Hence, the cost of your investment will be fixed, which is at the time of subscription.


In a recent article published in Moneylife Magazine (Avoid Close-ended Schemes-, we pointed out that close-ended schemes not only have no track record but turn out to be more expensive than schemes which are in existence for a few years or more and have gathered a larger asset base. Expenses are calculated based on the corpus of a scheme. For example, a scheme with a corpus of Rs1,000 crore will be able to charge a maximum annual fee (expense ratio) of 2.55% per annum, on the other hand, a scheme with a corpus of Rs100 crore or less (average corpus size of a close-ended scheme) is allowed to charge a maximum expense ratio of up to 3% p.a.


Hence, close-ended schemes turn out to be a risky choice. So is SBI Equity Opportunity Fund.



Kiran Aggarwal

3 years ago

SBI is earning bad repute day by day
with this twisting thinking and
tozic products roll out
across the spectrum
- SBI Life insurance policies for example

Equity mutual fund inflow in first seven months cross Rs39,000 crore

With the stock market hitting new all-time highs, it has become easier for MFs to attract investors, citing impressive returns from equity schemes, which are currently higher than that of bank fixed deposits


Buoyant stock markets helped attract over Rs39,000 crore in equity mutual fund schemes during the first seven months of FY2014-15. In the April-October period of 2013-14, such schemes had seen a net outflow of over Rs8,500 crore.


According to the latest data available with the Association of Mutual Funds in India (AMFI), investors have pumped in a net amount of Rs39,217 crore in equity-oriented MF schemes during April-October in current fiscal.


This trend is expected to continue in the coming months, industry experts said, adding there has been positive sentiment towards equity MFs and equity-linked savings schemes ever since the National Democratic Alliance (NDA) government came to power at the Centre in May.


"Equity schemes continued to attract capital in the past few months due to the continuing rally in equity markets," an analyst said.


These funds have added more than seven lakh investor accounts or folios in the first seven months of the current fiscal in view of sharp rise in the stock market.


The strong inflow in MF schemes coincided with the rise in BSE's benchmark index, Sensex, that spurted by around 25% during the period under review.


With the stock market hitting new all-time highs, it has become easier for MFs to attract investors, citing impressive returns from equity schemes which are currently higher than that of bank fixed deposits.


Mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.


The surge in inflows and improved valuations have taken the total assets under management (AUM) for the 45 fund houses to nearly Rs11 lakh crore.




3 years ago

Those who said all types of nasty things about equity mutual funds shall find it difficult now to stay away from equity funds.

Also, with markets hitting new all-time highs it has become easier for investors(?) to go in search of mutual funds.

Who will protect those who come ill-prepared. . . For like all previous bull runs this one too shall end badly.

It would be fascinating to see how & when this current bull run ends.

Kelkar panel says no to revenue sharing model for deep sea blocks

According to the Committee headed by Vijay Kelkar, production sharing contract regime is more suited for Indian conditions rather than the revenue-sharing model as recommended by Rangarajan panel and adopted by UPA government



An expert panel headed by Vijay Kelkar has recommended the current production sharing regime for oil and gas exploration over the revenue-sharing model that is being considered for the next round of auction.


The 10-member Committee, headed by former petroleum and finance secretary Kelkar, said the production sharing contract (PSC) regime was more suited for Indian conditions rather than the revenue-sharing model based on the Rangarajan panel which was adopted by the previous United Progressive Alliance (UPA) government.


Under the present regime, oil companies can recover all costs — of successful and unsuccessful wells — from sales of oil and gas before sharing profit with the government.


The Comptroller and Auditor General of India (CAG) had criticised this approach on grounds that it encourages companies to increase capital expenditure and delay the government’s share.


Last year, a panel headed by the then Prime Minister’s Economic Advisory Council Chairman C Rangarajan had suggested moving to a revenue-sharing regime that requires companies to state upfront the quantum of oil or gas they will share with the government from the first day of production.


The Kelkar Committee, which was formed last year to suggest ‘Roadmap for Reduction in Import Dependency in Hydrocarbon Sector by 2030’, in its final report said PSC model was more suited to attract investments.


“The Committee has reservations against accepting the ’biddable’ revenue sharing contract (RSC) model due to the inherently misaligned risk-return structure which leads either (i) to lower levels of production due to resultant reduced exploration efforts and lower recovery ratio, or (ii) to high windfall gains to operators encouraging contract instability due to political economy factors,” it said.


It suggested two fiscal regimes — PSC linked to investment multiple with modified contract administration including self-certification of costs by the contractors, or PSC with biddable supernormal profits tax.


For boosting local production of oil and gas, the Kelkar committee has suggested improving contract stability and administration as also maintaining contract stability and sanctity and prevent retrospective contract changes.


It also favoured contract extension for perpetuity or up to the end of the economic life of the asset and empowering boards of state-owned oil companies for approving equity participation in fields they had got from the government on nomination basis.


“Increasing oil production from existing mature fields would require access to advanced global expertise and technologies. Hence, the government should empower board of national oil companies to offer equity participation by foreign and domestic private companies with access to such technologies,” it said.


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