Some mutual fund advisors are urging their clients, especially those with full pockets, to withdraw ‘close-ended’ mutual funds like hardened maturity forms or FMPs after the recent crisis in the debt mutual fund range.
These advisors claim that the lock-in feature in mutual funds doubt investors the benefit of distress sale, which they think is especially important in the current situation.
“One thing we heard from the new and past change in the mutual fund space is that the close-ended schemes can become a real net if things go beyond. Investors don’t even have the right of distress sale,” says a wealth supervisor who doesn’t want to be identified. “We have been asking investors to withdraw FMPs for a while. We have been telling them not to get into FMPs only for the tax plan,” he adds.
The wealth director points out the new IL&FS crisis to emphasise his ideas. Faced with failure, some mutual fund houses rolled over their FMPs, while some of them left only unfair removals in their systems.
FMP investors are traditionally conventional, and they lock-in their purchases to withdraw investment rate risk. The only thing they want from their finances is marginally higher expected return with tax advantages. The current crisis proved their worst fears when they neither have predictability about results or even the tenure.
Curiously, some of these advisors are urging investors to stay away from even ELSS funds or tax saving mutual stocks because of the necessary lock-in period among the properties allowed under Section 80C of the Income Tax Act.
Advisors say they need to play secure and do not want to hand over the power of investments totally to fund organisations. They are asking their customers to take care of their tax-saving basis through traditional government-backed benefits like NSC and PPF.