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Perils of Closed-end Funds

Its better to avoid these funds as the exit load kicker carries stiff cost

I am holding 10,000 units of Sundaram BNP Paribas Energy Opportunities Fund and 6,000 units of Tata Indo Global Infrastructure Fund, both from their NFO launch. Do I need to redeem/switch over these funds?

- Babu

Both Sundaram BNP Paribas Energy Opportunities (launched in December 2007) and Tata Indo Global Infrastructure (launched in October 2007) are thematic, close-ended funds. The former invests in shares of energy companies, while the latter invests in both Indian and foreign infrastructure companies.

Investments in thematic funds should only corner a small allocation of your portfolio and never be core holdings. Secondly, we do not generally advocate close-ended funds. There are two reasons for this: firstly one can only invest during the New Fund offer (NFO) period therefore, no track record of performance of the fund is available and secondly, the exit load on a closed end fund is generally high when you want to redeem before the maturity of the fund. 

If you do not need the money, hold on, or else you will have to pay a hefty exit load to redeem your units. 

Also, keep in mind that equity investments are not for the short-term, one should invest only if you are intent on remaining invested for 3-5 years, at the least.

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