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Reliance Growth Shuts Doors

In a historic first, Reliance Growth has actually decided to start refusing fresh investments because its assets are getting too large to manage

In a historic first, and open-ended Indian mutual fund has actually decided to start refusing fresh investments because its assets are getting too large to manage. In a notice, the Reliance Capital Asset Management has said that it is withdrawing sale of units, including switch-ins, STP and SIP in Reliance Growth fund. However, applications for STP and SIP received prior to the withdrawal date shall not affected by the decision.

The AMC says it's taking such a decision, as increasing the fund's size further may prove detrimental to the existing unitholders. However, the AMC has indicated that the door is shut for now but it's not locked forever. The withdrawal shall be effective for three months and the AMC may extend or reduce the same.

Globally, it has been noticed that hot performing funds lose their magic once they grow bigger. To avert such a situation, many funds in the US (especially hedge funds) don't accept money from new investors. In the last two years, Reliance Growth has registered a phenomenal growth in its assets--from mere Rs 38.71 crore in June 2003, the fund's corpus has swelled to Rs 1,322 crore as on June 30, 2005. However overseas, funds usually continue to accept investments from current subscribers. This ensures a growth in their asset base, but at a moderate pace. In the case of Reliance Growth, no new application would be entertained.

The proposed withdrawal shall be effective when the corpus of the scheme becomes Rs 1,700 crore (as on June 30, 2005, the fund's corpus was Rs 1,322 crore) or August 14, 2005, whichever is earlier.

Why We Feel It's a Great Step

For the kind of fund Reliance Growth is, this is a good decision. Since the fund primarily invests in relatively illiquid mid- and small-cap stocks, large inflows could prove to be a hindrance. The fund manager may encounter problems while purchasing additional thinly-traded mid- or small-cap stocks without driving up the share price and making them more expensive.

This is a brave and commendable step since the AMC is sacrificing its own short-term revenues in favour of the its own and its investors' long-term good.