Tata Capital Builder Fund (TCBF) is yet another new fund offer (NFO) from Tata Mutual Fund. It is a close-ended diversified equity fund with an initial 3-Yr lock-in; subsequently it will be converted into an open-ended fund. The fund proposes to capitalise on the medium term opportunities available in the Indian economy. It aims to generate capital appreciation by investing in stocks across market capitalisations (large caps, mid/small caps).
At last count, the fund house's portfolio boasted of 13 open-ended equity funds many of which have overlapping investment mandates. So you have a value fund (Tata Pure Equity) in addition to a dividend yield fund (Tata Dividend Yield Fund) and a contra fund (Tata Contra Fund); any investor can tell you that the last two fund categories are variants of the value style of investing. For some reason, Tata Mutual Fund felt the need to launch a close-ended tax-saving fund (Tata Tax Advantage Fund), despite owning an open-ended one (Tata Tax Saving Fund). This 'need' was triggered mainly because due to some confusion in the interpretation of the law, fund houses for a while had the option to launch close-ended tax-saving funds.
In recent times, the fund house has shown a marked preference for funds of the close-ended variety. Not surprisingly, this change in stance has come about after the SEBI (Securities and Exchange Board of India) clamp down on the expenses that can be charged by a fund house on open-ended NFOs. Close-ended NFOs can continue to pay mutual fund distributors higher commissions so long as expenses are amortised over the lock-in period.
TCBF has little uniqueness to offer in terms of an investment idea/mandate. Of course, being close-ended for 3 years can be considered a 'unique' feature considering that its last NFO (Tata Equity Management Fund) launched only a month ago, was close-ended for 18 months. TCBF has little reason to consider its investment mandate of investing across market capitalisations as unique; flexi cap funds and opportunities funds (including Tata Equity Opportunities Fund) have been in existence for quite some time. They invest across market segments just like TCBF proposes to do.
In our view, TCBF has little value add to offer. Investors already have a range of well-managed, flexi cap/opportunities funds at their disposal. We recommend that they opt for two such well-managed funds - Franklin India Flexicap (with a track record of less than 3 years but with a very competent fund management team, backed by a 13-year track record) and DSP ML Opportunities (track record of over 5 years).
