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The recent IPO (initial public offering) craze has attracted strong interest from retail investors and mutual funds. IPOs launched in the past few months have raised Rs 24,926 crore. Yet, not all IPOs perform well on listing; some enter the market with inflated valuations. Of the 157 IPOs launched since March 2020, 32 are still trading below their issue price.
Given such unpredictability, how does one invest in IPOs? For the uninitiated, you can invest in IPOs directly or through mutual funds . Managed by professionals, mutual funds offer diversified exposure and potential proportionate allotment in oversubscribed IPOs. However, investors incur management fees and have limited control over IPO selections. On the other hand, direct investing in IPOs allows autonomy but requires research and exposes investors to uncertainty.
Importantly, mutual funds have a tax advantage, too. The gains are not taxable until the fund is sold. On the other hand, individual IPO exits (within a year) incur a 15 per cent capital gains tax.
So, is there a mutual fund that focuses on IPO investing?
Enter Edelweiss Recently Listed IPO Fund . Launched in 2018, it invests at least 80 per cent of its portfolio in stocks from the universe of recently listed 100 IPOs. Based on SIP returns, the fund has outperformed the broader equity market and the IPO index in the last three-year and five-year periods.
SIP returns (in %)
| 3-year | 5-year | |
|---|---|---|
| Edelweiss Recently Listed IPO Fund | 18 | 23 |
| S&P BSE IPO Index | 14 | 21 |
| S&P BSE Sensex | 13 | 16 |
| Note: Data as of December 1, 2023 | ||
Selectivity
This fund is highly selective in its approach. Of the 196 IPOs launched between the fund's inception and October 2023, it invested in only 83.
That said, the fund's selection has been a mixed bag. While it participated in many blockbuster IPOs, it missed out on some big opportunities (see table 'Most rewarding IPOs since 2018'). Importantly, it has also dodged disasters (see table 'Most disastrous IPOs since 2018').
Most rewarding IPOs since 2018
| Company | Listing date | Returns (%) | Invested? |
|---|---|---|---|
| Route Mobile | 21/09/2020 | 343 | Yes |
| Laxmi Organic Industries | 25/03/2021 | 334 | No |
| Indian Railway Catering and Tourism Corp | 14/10/2019 | 304 | Yes |
| Nureca | 25/02/2021 | 303 | No |
| Paras Defence and Space Tech | 01/10/2021 | 257 | No |
| Easy Trip Planners | 19/03/2021 | 248 | No |
| Happiest Minds Technologies | 17/09/2020 | 230 | Yes |
| Likhitha Infrastructure | 15/10/2020 | 209 | No |
| Adani Wilmar | 08/02/2022 | 189 | No |
| Clean Science and Technology | 19/07/2021 | 182 | Yes |
| Burger King India | 14/12/2020 | 169 | Yes |
| Veranda Learning Solutions | 11/04/2022 | 153 | No |
| Cyient DLM | 10/07/2023 | 145* | Yes |
| *As on December 1, 2023. Stock returns in the first six months post listing from the issue price. Data for IPOs launched till October 31, 2023 | |||
Most disastrous IPOs since 2018
| Company | Listing date | Returns (%) | Invested? |
|---|---|---|---|
| One97 Communications | 18/11/2021 | -73 | No |
| Sterling and Wilson Renewable Energy | 20/08/2019 | -67 | No |
| CarTrade Tech | 20/08/2021 | -62 | No |
| Fino Payments Bank | 12/11/2021 | -55 | No |
| Apollo Micro Systems | 22/01/2018 | -53 | No |
| AGS Transact Technologies | 31/01/2022 | -53 | No |
| Shriram Properties | 20/12/2021 | -48 | No |
| Stock returns in the first six months post listing from the issue price. Data for IPOs launched till October 31, 2023 | |||
Our word
The fund has performed well in a buoyant IPO market. However, it is yet to witness a bear market phase. And since the fund's ability to avoid poor IPOs is praiseworthy, it can be considered if you are an aggressive investor seeking a hands-off approach to ride the IPO wave.
Also read: Money magnets of 2023
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