Triggering New Inflows | Value Research Union KBC's 'trigger' funds promise investors a certain percentage of returns and liquidate once the target is reached

Triggering New Inflows

Union KBC's 'trigger' funds promise investors a certain percentage of returns and liquidate once the target is reached

If you want to buy an equity fund, you usually get plenty of advice on what funds to buy and when to buy them. But when it comes to selling a fund, you seldom get such guidance. With the markets going up and down, one can miss out on good profit-booking opportunities and sell at the wrong time.

Union KBC Asset Management Company, one of the recent smaller entrants to the crowded mutual fund industry, has decided to make this (exit at the right time) its USP. It has been launching a series of 'trigger funds' with a diversified equity portfolio. These closed-ended equity funds target a particular return from their portfolios at the outset. Once it is met, the fund is wound down and the money returned fully to investors.

As a new fund house that had to jostle for space with 40 other older players in the market, Union KBC, therefore, decided to launch closed-ended equity funds which would wind up and return the cash to investors when their target NAV (₹13 per unit) was hit. With the bull market taking off last year, Union KBC Trigger Fund Series I met the 30 per cent target in just eight months and returned the cash to investors.

Its second fund in the series, with the same 30 per cent return target, was launched in February 2015 and is now in operation. "As long as we are positive about markets and economy we will keep launching trigger funds," says Kumar.

But won't such trigger funds reinforce the view that equity funds are for the short term and encourage investors to churn their funds frequently? Pradeep Kumar disagrees. "To first-time investors, you can keep talking about how equity funds deliver returns over the long term. But they won't believe it, unless you prove it to them. They need to taste success before they commit to mutual funds. It is a big leap of faith. Only actually returning them the money can do it."

Once investors gain faith, he believes, they can be migrated to more long-term products. In fact, investors who made money in the first Union KBC fund have returned to invest in open-ended products, he says.

Though it is a relatively new entrant to the mutual-fund industry, Union KBC has managed to attract many first-time mutual-fund investors. Two-thirds of its investor base is made up of first-time mutual-fund investors, says Kumar. Union Bank's distribution reach in North India has helped the fund house garner many SIP investors from cities such as Lucknow.

While the concept of a closed-ended fund that winds up based on a trigger is a new one, many older equity funds already offer a trigger facility to investors. Such triggers allow investors to leave standing instructions with the fund to redeem units, transfer them to a debt fund or pay dividends, if a target return or target NAV is reached.

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