If
you have mistaken a mutual fund IPO for a stock IPO, it is
time for a reality check. Contrary to the popular perception,
a mutual fund cannot launch an IPO. It can only launch a new
scheme, and the word IPO is strictly used in the context of
public offering of shares by a company, for the purpose of
listing it later on a stock exchange.
Investors
fail to distinguish between stocks/shares and mutual fund
units. Investors seem to believe that in value terms a Rs
10 unit in an IPO is better than existing schemes' units at
higher NAVs-which is not the case, since that value depends
not on the NAV but on the underlying stocks.
Dalal,
a regular investor into different investment instruments,
one of them being mutual funds, is now wary of them. The reason:
He was taken aback by the number of at-par mutual fund Initial
Public Offerings (IPOs). Like many other investors, he assumed
that a mutual fund IPO is similar to that of a company IPO.
Many investors including Dalal, put their money into these
so-called initial public offerings of mutual funds, thinking
that they can make a quick buck on listing (as is usually
seen in case of a company stock listing). But they learnt
their lessons the hard way-by losing money.
The
misconception is on account of usage of terms like `IPO' and
`at-par'. The word Initial Public Offering is usually associated
with a company coming up with an offering for new shares.
In recent times, many mutual fund houses launched new schemes
touting them as IPOs which led investors to believe that those
were similar to stock IPOs. Also they thought that as these
IPOs were available at-par, they could make quick gains. In
fact, in the recent past, many people invested in mutual fund
IPOs just because they were being sold at par! What they failed
to recognize is the fact that a new scheme or new offering
from a mutual fund house is always sold at-par. |
