Mutual fund houses should be happy about this since they are not losing business; and as investors have been pumping money through Systematic Investment Plans (SIPs); they are able to buy cheap.

But instead of focusing on existing mutual fund schemes, fund houses have implemented their old strategy of chasing AUM (Assets Under Management).

If you look at the quantity of close-ended schemes being launched, you realise that mutual fund houses are taking investors for granted.

Mutual Fund Houses need to be more responsible with how they conduct business.

Some mutual funds use roman numerals to denote the series number of their close-ended schemes. At present, the count of these close-ended schemes has exponentially increased. 

Close-ended funds on offer…

Scheme Name	Type	Open Date	Close Date	Category
SBI LT Advantage Fund-V-Reg(G)	Equity	21-Dec-17	20-Mar-18	Equity - ELSS
ICICI Pru LT Wealth Enhancement Fund(G)	Equity	22-Dec-17	21-Mar-18	Equity - ELSS
Sundaram LT Tax Adv Fund-Sr III-Reg(G)	Equity	27-Dec-17	27-Mar-18	Equity - ELSS
ICICI Pru LT Wealth Enhancement Fund(G)-Direct Plan	Equity	22-Dec-17	21-Mar-18	Equity - ELSS
SBI LT Advantage Fund-V-(G)-Direct Plan	Equity	21-Dec-17	20-Mar-18	Equity - ELSS
Sundaram LT Tax Adv Fund-Sr III-(G)-Direct Plan	Equity	27-Dec-17	27-Mar-18	Equity - ELSS
UTI LT Adv Fund-VII(G)	Equity	21-Dec-17	21-Mar-18	Equity - ELSS
UTI LT Adv Fund-VII(G)-Direct Plan	Equity	21-Dec-17	21-Mar-18	Equity - ELSS
IDFC Equity Opportunity-5-Reg(G)	Equity	1-Mar-18	14-Mar-18	Equity - Multi-cap
IDFC Equity Opportunity-5(G)-Direct Plan	Equity	1-Mar-18	14-Mar-18	Equity - Multi-cap
SBI DAF-XXVII-Reg(G)	Hybrid	5-Mar-18	16-Mar-18	Balanced - Debt-Oriented
SBI DAF-XXVII-(G)-Direct Plan	Hybrid	5-Mar-18	16-Mar-18	Balanced - Debt-Oriented
Reliance Capital Builder Fund-IV-E(G)	Equity	13-Mar-18	27-Mar-18	Equity - Mid-cap
Reliance Capital Builder Fund-IV-E(G)-Direct Plan	Equity	13-Mar-18	27-Mar-18	Equity - Mid-cap
Aditya Birla SL Resurgent India Fund-7-Reg(G)	Equity	20-Mar-18	3-Apr-18	Equity - Diversified
Aditya Birla SL Resurgent India Fund-7(G)-Direct Plan	Equity	20-Mar-18	3-Apr-18	Equity - Diversified

(Source: ACE MF)

In the recent past, the capital market regulator imposed strict restrictions on mutual houses looking at the unrestrained behaviour.

Earlier, mutual fund houses would launch New Fund Offers (NFOs) indiscriminately to grow their AUM. Since it's easy to collect money from investors under rising market conditions, most of these NFOs were launched when the markets were high –––to make hay when the sun shines banking on the market sentiments.

And most importantly, NFOs launched during the euphoric rallies didn't perform.

The increased number of schemes on offer made the selection process difficult for investors. Plus, with duplication of schemes being a prevalent practice, it added to the confusion. And ultimately, investors paid a hefty price — losing money and the confidence to invest in mutual funds.

Taking strict action against such brazen practices, the regulator not only tightened the NFO guidelines, but also insisted on the merger of similar schemes.

In 2016, the Association of Mutual Funds in India (AMFI) advised mutual funds not to pay more than 1% upfront commission to avoid the wrath of the capital market regulator.

Now, since these new restrictions were applicable only to open-ended schemes, mutual funds focused on growing AUM through closed-ended schemes.

It's completely unacceptable.

Are closed-ended schemes bad?

To an extent, yes!

Why?

Here are reasons to avoid them

• They don't allow regular investments. Hence, the SIP mode option is non-applicable.

• They don't have any track record to depend on. So you have to trust the mutual fund house and its fund manager/s.

• Closed-ended schemes block your capital for a pre-determined period. And often, you get stuck with them even if their performance is poor.

• They are extremely inflexible. Some closed-ended schemes list their units on exchanges, but liquidity is so low, that it becomes unviable at times to buy or sell on the exchange.

• Close-ended schemes often attract higher costs than the open-ended schemes, and therefore costly vis-à-vis open-ended schemes.

• There isn't historical evidence that close-ended schemes outperform open-ended schemes. But there have been instances where close-ended schemes have performed miserably.

Investing in open-ended mutual fund schemes that have a proven track record can go a long way in your journey of wealth creation.

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nitinchawla7890@gmail.com Aug 27, 2018 Pls. Tell me best mutual fund schemes.

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