The net asset value (NAV) of IIFL Focused Equity Fund is up 8.16% in four days. Such a huge jump in a short span of time is almost unheard of for mutual funds. It’s believed to be a direct consequence of its allotment of a large chunk of shares in the HDFC AMC IPO.
News reports suggest that the AMC applied for anchor allotment in IPO and got a huge allotment in this fund relative to its size (1.73 lakh shares worth Rs 19.03 crore).
The large allotment caused the fund to abruptly double its exit load. The previous exit load was 2% for an exit within two months of purchase. This was doubled to 4% for an exit within three months of purchase. This announcement was made on 1st August, five days before the HDFC IPO listing on Monday. The AMC seems to have been worried about huge investor outflows seeking to encash the listing gains in HDFC AMC. HDFC AMC surged as much as 65% on day 1 to Rs 1,800 levels compared to IPO price of Rs 1,100, causing the fund’s NAV to also skyrocket.
News reports suggest that high net-worth investors (HNIs) rushed into this fund to corner precisely these listing gains. This is because IPOs are allotted to investors based on different categories – institutional, retail or HNI. An oversubscription in a particular category can greatly reduce the chances of getting any shares allotted in the IPO. On the other hand, applying indirectly through different categories can maximize those chances.
IIFL Focused Equity Fund falls under the new ‘focused’ category set up by SEBI. A fund in this category can hold a maximum of 30 stocks. Such funds by their very nature tend to be a lot more concentrated than an average equity fund. However, an equity mutual fund, even a focused one, is supposed to be diversified sufficiently well to prevent the unit holders from being too strongly affected by any one stock. In the case of IIFL Focused Equity Fund, that seems to not have been the case.
For now, both HNIs and small investors in IIFL Focused Equity fund are enjoying the gains of the IPO appreciation. Investors should remember that the bet may well have gone the other way. Caveat emptor, small investor in a small fund.