Edelweiss
mutual fund has decided to convert Edelweiss Maiden Opportunities Fund – Series
1 to Edelweiss Recently Listed IPO Fund.
What is Edelweiss Recently Listed IPO Fund?
Edelweiss
Maiden Opportunities Fund – Series 1 was launched as a close ended fund in
February 2018 with the primary objective of availing opportunities in recently
listed and upcoming NFO’s.
The fund
has now been converted to an open-ended fund.
Edelweiss Recently
Listed IPO Fund is an open-ended equity fund following an investment theme of
investing in recently listed 100 companies or upcoming IPO’s.
Scheme Details for Edelweiss Recently Listed
IPO Fund
Minimum Investment |
Rs 5,000 |
Conversion Date |
29th June 2021 |
Benchmark |
India Recent 100 IPO Index |
Exit Load |
Upto 180 days – 2% After 180 days - Nil |
Additional reading: Click Here to read our complete report on Dividend Yield mutual funds
Edelweiss Recently Listed IPO Fund Strategy
The fund as
the name suggests will be investing in recent 100 IPOs to take advantage of
listing and post listing gains.
The fund
will also look for opportunities in companies about to be listed with a lookout
for new age businesses.
It will be
biased towards mid and small cap stocks.
The fund
would usually have around 30-40 stocks in its portfolio.
The fund is
not under any obligation to invest in each and every ipo.
It reserves
the right to not participate in IPO’s that it may not consider fruitful and at the
same time can also exit from a stock in the future after IPO participation.
Even though
the close ended fund prior to conversion had a low churn rate, you should not
read too much into it since it was a close ended fund meaning it had no option
for new inflows which could have highly influenced the low churn rate.
Asset Allocation for Edelweiss Recently Listed
IPO Fund
The asset
allocation for the fund would be something like this
Asset Class |
Minimum |
Maximum |
Equity and Equity Related
instruments including derivatives of recently listed 100 companies or
upcoming IPOs |
80% |
100% |
Equity and Equity related
instruments including derivatives of other than recently listed 100 companies
or upcoming IPOs |
0% |
20% |
Debt and money market instruments |
0% |
20% |
Possible gains for Edelweiss Recently Listed
IPO Fund
The fund
gives you the opportunity to avail of post listing gains.
Even though
other equity funds can also provide the same, other funds are under no
obligation to invest in IPOs so chances are slim.
The fund
can decide which IPOs to invest and which ones to avoid, meaning you do not
need to research the same.
The minimum
investment is on the lower side since you will be investing via a mutual fund
and not directly.
The fund
does have a unique proposition unlike other equity funds which provides
meaningful diversification.
Possible risks for Edelweiss Recently Listed
IPO Fund
The fund
requires a minimum 80% investment in recently listed 100 companies or upcoming
IPOs.
This makes
the fund highly restrictive with regards to diversification.
Quality
IPOs usually come with periodic breaks thereby the fund may not always have the
option of quality purchases.
This
restrictive model along with the fund’s model of bias towards mid and small cap
stocks makes the fund highly volatile.
The other
side of this volatility can generate decent returns but it is not unique to
this fund, other plain equity funds can provide the same with better stability.
A higher portion of the fund’s portfolio is allocated to the banking and financial sectors.
This is in
line with the number of IPOs belonging to these sectors in the past few
sectors.
As on 31st
May 2021, the fund had around 40 stocks in its portfolio.
This again
is line with the fund’s philosophy of holdings around 30-40 stocks.
This makes
the portfolio a focused portfolio with restrictions in its style and a bias
towards mid and small cap stocks.
The fund was overweight on the following sectors:
- Financial
- Services
- Healthcare &
- Engineering
While it was underweight on the following sectors:
- Technology
- Construction
- FMCG &
- Automobile
Its allocation to the various caps is as under:
- Large cap – 36.67%
- Mid cap – 48.09%
- Small cap - 15.25 %
The fund more often than not will have a higher exposure
towards mid and small cap stocks compared to large caps.
Should you invest in
Edelweiss Recently Listed IPO Fund?
The fund
although admittedly provides a unique investment option, the risk reward ratio
for the same is poor.
The
portfolio is highly restrictive, focused and with a bias towards mid and small
cap stocks.
The returns
do not justify the volatility when other plain equity funds with a much more
simplistic approach are available.
Playing the
long term game does sound good on paper but that logic cannot be applied in
this case since this fund is highly restrictive, invests a minimum of 80% in
either recent 100 or upcoming IPOs and then again the fund is selective with
the IPO’s it will participate in.
The fund
for a long time can remain stuck with selective underperforming stocks too if
it cannot find decent opportunities.
Here is why
IPOs are not always a good idea:
This is not
the 90s anymore when research was scarce, mutual funds were still at a nascent
stage and the stock market was seen as a gambler’s den.
Things are
far more formalized and regulated although there is always room for improvement.
With IPOs
not enough information is available on the company about to be listed to undertake
research or form any sort of opinion, although past returns and
performances are no surety for the future but they do help understand how a
company does overall specially when things are not looking so good.
IPOs these
days are outrageously valued even though there are not enough credible numbers
to back them.
Be it
mutual funds or direct equity, a strong sense of conviction is needed since you
invest for the long term ideally but the same is not visible with IPOs since
neither credible numbers are present nor enough resources on the management is
available.
Investments
should be simple and anything beyond that should provide you with strong enough
reasons in terms of quality as well as quantity and past results and future
prospects to gain your attention.
Edelweiss
Recently Listed IPo Fund fails on many counts to be considered let alone be a
serious contender for your mutual fund portfolio.
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