AMCs eagerly pursue special opportunities funds; 3 firms file draft papers with Sebi

Asset management firms are showing enthusiasm for special opportunities funds, with three such firms submitting draft papers with markets regulator Sebi to float schemes based on this theme recently.

During March-April, three Asset management companies (AMCs) -- WhiteOak Capital, Kotak Mahindra and Samco -- filed draft papers for the Special Opportunities Fund or Special Situation Fund, data with the Securities and Exchange Board of India (Sebi) showed. At present, Aditya Birla Sun Life MF, ICICI Prudential MF, Axis MF are the fund houses that offer special situation funds.

Special Opportunities Funds are mutual fund schemes that intend to take advantage of the opportunities created by special situations in the market. These situations are unique situations, opportunities or challenges faced by a company, sector, or economy as whole.

Feroze Azeez, Deputy CEO, Anand Rathi Wealth Ltd, said special situation funds aim to invest in stocks that are mispriced, often due to companies facing unique circumstances such as regulatory or policy changes, management restructuring such as merger or amalgamation, technological disruptions, or temporary challenges in their operating environments.

While these funds were previously categorized under Category I of Alternative Investment Funds (AIFs), mutual funds are now exploring them to appeal to a broader investor base.

"Most diversified categories have already been explored by mutual fund houses, limiting their ability to introduce new funds within those categories. Thematic investing offers a space for AMCs to explore and experiment with new themes, introducing fresh funds," Azeez said.

Manuj Jain, Co-Head Product Strategy, WhiteOak Capital AMC, said that the top 10 holdings of special situations funds usually vary significantly from the benchmark index and flexi cap funds.

Special Opportunities Funds are particularly suited for long-term investors. The risk-reward profile makes these funds an attractive option for those who understand and are comfortable with the potential volatility, he added.