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Tempering Inflows

IDFC Premier Equity’s strategy of frequent shutdowns has resulted in great performance & good inflows…

IDFC Premier Equity is a top rated fund. Interestingly, out of its life of 82 months, it has been closed for new one time investments for 41 months. Now, once again it has closed sine die for one-time investment on May 31. However, the fund closure for new one-time investment is partial as SIP investments can still be made during this period.
This strategy of frequent shutdowns has consistently boosted its inflows. The fund’s assets under management have more than quadrupled (from Rs 580 crores to Rs 2,560 crores) since April 2009; that too, when it remained closed for 27 months at various intervals in this while.

Talking about the shutdowns, the fund doesn’t follow a definite strategy in this regard: Sometimes, it has been closed for 18 months at a stretch while on other occasions just for a month. Surprisingly, when it has remained open for longer durations, it has actually witnessed redemptions. Looks like the fund attracts investors’ attention when it announces a closure.

These closures have been for a variety of reasons at different times: Liquidity concern in the mid- and smallcap holdings in the portfolio; dearth of attractive investment avenues; valuation of the fund’s target stock; and to dissuade short-term investors from the fund.

Theoretically, infinite quantity of an open-ended equity fund can be had on demand. Perhaps, the frequent closure makes the fund a sort of privileged investment. That may not be the reality but it certainly helps the perception of a scarce fund. As on May 31, 2012, the number of SIP accounts in this fund was 92,956.
While this strategy of periodic closures has worked wonderfully for IDFC Premier Equity, it has not gone the same way for any other equity fund. Other equity funds – HSBC Midcap Equity, Reliance Growth, Reliance Equity and Franklin India Prima– have also closed for a certain period but could not master the trick of raising money by closing down.