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Suresh Krishnamurthy

INVESTMENTS in Morgan Stanley Growth Fund can be considered. The fund is trading at an attractive discount of about 27 per cent to its net asset value. Buying at this price could lead to above-average returns if investors retain the units patiently till redemption in 2009.

Discount tracking: The discount of 27 per cent is closer to the higher end of the range at which the discount of this scheme has been ruling at the market place. Only on a few days has it nudged closer to 30 per cent or beyond. Normally, buying when the discount exceeds 27 per cent and paring exposures when it falls below 22 per cent has boosted returns in the past.

Good hedge: Investing in Morgan Stanley Growth Fund when the market is on a high has also proved to be a good hedge. For instance, since January 2004, BSE 100 has gained 7 per cent. Investments in Morgan Stanley Growth have, however, produced notional returns of 46 per cent.

Similarly, investments in February 2000 would have generated notional returns of 87 per cent compared to the 2 per cent gain recorded by BSE 100. The returns are notional since the fund is close-ended and the net asset value can be realised only on redemption.

Incidentally, from February 2000 to September 2001, the BSE 100 crashed by 67 per cent; in this phase, investments in Morgan Stanley Growth would have recorded notional losses of 38 per cent. Hence, this scheme also offers a good hedge when stock prices are at their peak.

Scheme performance: The performance has generally not been impressive when compared to its peers. It barely manages to outperform BSE 100, its benchmark. Even this performance needs to be discounted for the buyback of units from the market place. Such buybacks enhance the net asset value and boost returns. In terms of fund manager performance, the scheme may only be tracking the index.

This level of performance was acceptable in the earlier years, given the size of the fund and the size of the market then. Now, however, the market has grown quite large in size and there are a number of large-sized open-end equity funds that deliver substantially superior returns.

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