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Stick to Morgan Stanley?

I have 4,000 units of Morgan Stanley Growth Scheme that I was allotted in the IPO in February 1994. What should I do with this investment?
-Rajesh Chavhan

I have 4,000 units of Morgan Stanley Growth Scheme that I was allotted in the IPO in February 1994. What should I do with this investment?
—Rajesh Chavhan


The simple answer to your question is that you should hold on to this fund till its redemption in February 2009. There may have been periods in the past when it may have made sense--from that time's perspective--to have sold off your units in this closed end fund at whatever discount the stock market offered.

Right now, it would be best to hold on since the date of redemption is not too far off and the fund's recent performance suggests that it is likely to be able to deliver good returns. If you sell off now, you will receive a mere Rs 17.90 per unit as against an NAV of Rs 23.91. This is a discount of 25 per cent and it's certainly not worthwhile taking such a hit.

Your question brings up the interesting issue of whether Morgan Stanley is a good investment today, i.e., should anyone actually buy this fund today? Our view is that it is a fairly attractive investment because of the discount you can get on it. Buying Morgan Stanley Growth Scheme units from the market mean that you are buying an asset worth Rs 23.91 at Rs 17.90. Sure, it does have a lock-in of four years but you get a gain of around 33 per cent straightaway. If you have a demat account, it would be well worth it to regularly buy some units, SIP-style, as long as a substantial discount lasts (the discount is bound to narrow as the redemption date nears).

The fund's recent track record definitely justifies purchasing it at a discount.

Over the last five years, it has consistently beaten the BSE Sensex by a comfortable margin. Combined with the initial discount, a similar performance till redemption would leave an investor with gains that could be twice that of the index.

Morgan Stanley Performance
Period  Morgan Stanley Growth  Open-end Diversified Funds  Sensex
Year-to-date 10.15 15.99 6.57
1-Month 6.74 8.11 6.32
3-Month 17.67 18.32 18.99
1-Year 24.28 30.39 20.56
3-Year 30.59 39.64 22.42
5-Year 10.42 12.83 5.43
% gains, as of Dec 10, 2004


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