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Fund at a 17% Discount

What about investing in Sensex at 9,900 when it has already touched 11,896? Yes, we are talking about investing in equities at nearly 17 per cent discount! Read on to find out how

The units of Morgan Stanley Growth Fund which was, till recently the only closed-end equity fund in the country, are available at a discount of nearly 17 per cent to its NAV. That simply means that you have to pay 16 per cent less than its present NAV to buy the units of this fund. Now if you are wondering how can this happen, here is the explanation. Morgan Stanley is a close-ended fund due for redemption in 2009. In between, the units cannot be redeemed directly to the fund house. But this fund is listed at the stock exchanges and its units are traded like any other equity share. Its traded price (the price at which you can buy and sell the units) is determined by the forces of demand and supply, and may or may not be equal to its NAV. And right now, this price is at a clean discount of around 17 per cent to the NAV! To be precise, the fund's NAV as on April 19, 2006 was Rs 49.30, while its price at the stock exchange was Rs 42.20.
This is a wonderful proposition and a win-win situation. Any equity fund investor today would be worried about where the markets would go from here on. Only three things can happen- either the markets would go down, or they would go up, or they would be range-bound and stay where they are. But with Morgan Stanley, an investor is likely to be better off in all the three situations.
If the markets go down, the downside of your investment in Morgan Stanley will be protected to an extent, and the loss to you will start only if the markets fall more than 17 per cent. Where else would you find such a wonderful risk management proposition? On the other hand, if the markets go up or remain where they are, even then you have an advantage of 17 per cent to start with which is available to you as a result of buying the units cheaper.
Another advantage is that you will not have to pay any load for this fund. Since you will purchase the units through a stock broker the charges for the transaction will be same as are applicable for an equity share, and the units will get reflected in your demat account.
However, see it as an investment which you would be ready to hold till 2009, because it is only then that the fund will either get converted into open-ended or get redeemed and you will realize the NAV. If you decide to sell it in between, you can do so at the stock exchange at its traded price at that time. And right it will only be speculation to comment as to whether it will continue to trade at a discount, or catch up with the NAV, or even exceed it to trade at a premium.
While there is a lot of hype surrounding some of the newly launched close-ended funds, we think equity investors can give a serious thought to Morgan Stanley Growth Fund. And if it sounds lucrative enough, you can read in detail about this fund and its performance record here.