Should you invest in the Edelweiss Recently Listed IPO Fund?

By Ravi Samalad |  25-05-21 | 
 
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About the Author
Ravi Samalad is Assistant Manager - Editoral for Morningstar.in.

Launched in February 2018 as a close-ended fund, Edelweiss Maiden Opportunities Fund will turn open ended on June 29, after its maturity on June 28, 2021. The exit period for existing investors is May 27, 2021 to June 28, 2021. The fund will be rechristened as Edelweiss Recently Listed IPO Fund after the conversion.

Edelweiss Maiden Opportunities Fund invests exclusively in up to 100 recently listed (up to five years) and upcoming Initial Public Offerings (IPO). Currently, there is no such similar offering from any other AMC in the mutual fund space.

In the Alternative Investment Fund (AIF) space, some AMCs offer pre-IPO funds where investors get exposure to private companies which are set to go public in a few years.

Due to a sharp recovery in markets, we are seeing a slew of IPOs in the recent past. Mutual funds are actively participating these IPOs. Mutual funds held stakes in 12 out of the17 companies that got listed in the March quarter at an aggregate market value of over Rs 3,200 crore as on March 31, 2021. Companies from 18 different sectors have raised funds in the last three years. In 2020, 13 IPOs hit the exchanges. In 2017, there were 35 IPOs.

IPOs are bringing an opportunity for investors to get exposure to new themes/firms which were not available so far. Companies from diverse themes/segments like Nazara, HDFC AMC, D Mart, Metropolis, SBI Life, SBI Cards, IndiaMart, SBI Cards, CAMS, CDSL, Metropolis, and IRCTC, have gone public.

Holdings

As on May 20, 2021, the fund’s underlying holding is 35.39% in large caps, 56.26% in mid caps, 6.50% in small and 1.86% in micro cap stocks. The top ten stocks constitute 43.65% of the fund’s holdings are in the top ten stocks. The fund has invested in 41 stocks.

What makes this fund different from other diversified funds?  According to a note shared by the fund house, Edelweiss IPO Fund has around 92% exposure to recently listed IPOs (listed in last 5 years). On the other hand, Multi-cap Funds on an average have 8% exposure to recently listed IPOs (listed in last 5 years).

“This fund specifically focusses on investing in recently listed companies which usually form a very small part of a normal diversified fund. Over last few years we have seen new sectors like Asset Management, Insurance, Credit Cards and Internet getting introduced for investors through IPOs. Even within traditional sectors new age companies are getting listed. Investors don’t get justified exposure to these growth stories in a meaningful way in a regular diversified fund. If we look at current portfolio of a Multi Cap Funds, the average exposure to recent IPOs is less than 10%. This fund allows investors to take meaningful exposure into IPOs and benefit from their listing and post listing gains,” says Radhika Gupta, Managing Director & Chief Executive Officer, Edelweiss Mutual Fund.

Performance

In the calendar year 2019, the fund (direct share class) has delivered 14.94% against 8.64% by its benchmark Nifty 500. In CY 2020, the fund delivered 34.17% against 17.70% by the benchmark. Since inception, the fund has posted 15.28% as on May 24, 2021.

Risks

If the quality of new IPOs coming into the market is not up to the mark, the fund will have a limited investing universe.

IPOs avoided

Since not all IPOs are worth investing in, the fund avoided some recent listings such as Lodha, Barbeque-Nation Hospitality, Kalyan Jewellers India, Suryoday Small Finance Bank, Craftsman Automation, among others.

Should you invest? 

Harshad Chetanwala of MyWealthGrowth says that retail investors who miss out on getting allotment can consider giving some allocation to this fund. “Many investors in last one year have shown interest in IPOs. Most of these investors invest in IPOs for listing gains which is short term approach and may not always work for them. We do not recommend investing in IPOs, until the listing company offers attractive valuations and reasonable growth prospects. This fund offers a unique proposition of investing in IPOs and recently listed companies. There are long term investors who genuinely apply for IPOs but miss out on allotment. While they can invest in these companies post listing as well, this fund follows a process and do their due diligence before investing. This can be helpful for such IPO investors. The holding period for this fund should be long term and it does carry high risk as the portfolio may have higher allocation in Mid and Small caps companies. Small allocation can be considered strictly for investors with high-risk appetite and those who have an additional surplus after taking care of their objective oriented investments.”

Mumbai-based mutual fund distributor Rushabh Desai feels that while the concept of the fund is unique it comes with its own share of risks and cannot be a core part of investors portfolio. “The concept of this fund is very good which will allow retail investors to participate in IPO's especially the ones who are unable to directly. Having an IPO fund will help investors participate in IPOs which are well researched by the fund manager and will wave off the confusion factor into which companies investors should venture. That said, there can be certain drawbacks to this fund. At all times, 80% of the fund's portfolio will revolve in recently listed 100 IPOs or upcoming IPOs. This can limit or pull down the long-term performance of the fund. The fund can be highly cyclical and may outperform in selective periods. Hence, investors will need to closely look at the stock selection and may need to take tactical bets in this fund. This fund is not meant for everyone and cannot be a part of one’s core portfolio. The IPO opportunity in our country is huge but I would like to wait and see the fund's performance and consistency for a few more years before recommending it.”

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Ravi Samalad
Jun 21 2021 09:15 PM
 Hi Praveen,

The fund turns open-ended on June 29, 2021.

Regards
Ravi
Praveen Gorthi
Jun 21 2021 09:09 PM
 Is this fund is open for subscription currently.. ?
Naduvathramadom Murali
Jun 11 2021 02:09 AM
 Looks like an excellent fund. Their performance speaks for themselves. The fact that they avoid IPOs that are not profitable is a very good sign. I am intending to do an SIP investment in the fund.
ninan joseph
May 30 2021 04:43 PM
 Should you invest - Definitely not for the following reason.

1. People invest in IPO for listing gains - In this case you do not get any benefit of listing gain as the fund would have subscribed on your behalf and it will be in the NAV which will not be much.
2. People invest in IPO to have a long term investments and not for listing gain. Here again since this fund will keep applying for new IPO in the future you cannot have a control over an IPO which you really want.

Hence use the corpus you have which you were planning to invest in this fund and apply individually to the IPO which you feel like investing. Remember as a Retail investor if you subscribe for the maximum which is 2 lacks you will get a confirmed allocation and once the company is listed and if you like it go and buy more.

Going for a MF for IPO is definitely a no. Also as they keep investing in IPO, the advantage of one IPO could be lost on a dud IPO and thereby you will be ending up with a can whilst the AMC will get the commission.
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