Prudential ICICI Fusion Fund

Prudential ICICI Fusion Fund is a close-ended diversified equity Scheme, with a maturity period of 5 years, that seeks to generate long-term capital appreciation by investing predominantly in equity and equity related instruments of companies across large, mid and small market capitalization. However, there can be no assurance that the investment objective of the Scheme will be realized.
*Source: Offer document

With equity markets touching record highs, fund houses seem to have become aware of the importance of long-term investing. Consequently, a slew of new fund offers (NFOs) of close-ended equity funds have hit the markets. Prudential ICICI Fusion Fund (PIFF) is the latest offering in this segment.

Equities as an asset class are best equipped to deliver over longer time frames and close-ended funds promote the same. Close-ended funds ensure that investors stay invested for longer periods (like 5 years in PIFF) and thereby give them the opportunity to benefit from investing in equities.

Similarly, a fund manager managing a close-ended fund can afford to make long-term investment decisions and be indifferent to short-term market fluctuations. This is where he has an edge over a fund manager handling an open-ended fund. Events like redemption pressure could force the latter into making short-term calls and thereby compromise investors' interests.

PIFF is mandated to invest in stocks across market capitalisations i.e. large, mid and small cap stocks. This makes the fund a 'true blue' diversified equity fund with unrestricted access to attractive investment opportunities.

Investors with a flair for high risk investment avenues can consider adding the fund to their portfolios. Also only that portion of their investible surplus which has been reserved for long-term investments should be invested in the fund, given the fund's close-ended nature. Since dividends declared by close-ended equity funds are subject to dividend distribution tax, we suggest investors select the growth option.

PIFF is mandated to invest between 70%-100% of its assets in equities; under normal circumstances the fund intends to hold at least 90% of its corpus in equities. The fund can invest upto 30% of its corpus in debt instruments and current assets.

A turnaround has been witnessed in schemes from Prudential ICICI AMC over the last 2 years. The fund house has benefited from the presence of a new fund management team and a process-driven investment approach. We believe PIFF can benefit from these positives and the scheme could hold investors in good stead going forward.

Investors on their part need to take into consideration that PIFF is a high risk - high return investment proposition. Also, the fund's close-ended nature means that investors' investment tenure should match that of the fund. This is pertinent in light of the steep exit load structure which can make pre-mature withdrawals, rather expensive propositions.