The AMC has filed draft prospectuses with the Securities and Exchange Board of India and the two schemes are likely to hit the market by December, 1998. The schemes have been christened India Discovery Fund and Discovery Fund and will be the maiden funds from the subsidiary of Infrastructure Leasing and Financial Services (IL & FS).

The two funds will be closed-end with a tenure of four years. ``We are launching closed-end schemes since we will follow a strategy of value investment i.e., to invest in stocks which have moved away from current frenzy in certain sectors but have inherent good value. Such stocks have gone out of market favour and hammered needlessly,'' says an official at the AMC. ``We intend to tellinvestors that returns here are likely to come in the long-term and risk is high,'' he added. A closed-end fund will not come under redemption pressure in case the fund fails to generate sufficient returns.

The India Discovery Fund will be an institutional scheme for the off-shore investors which will marketed through a Mauritius limited life company. The Mauritius-based company will mobilise the money and invest in India Discovery Fund. The fund, in turn, will make investments in the Indian equity markets. The subsidiaries of American International Group, a leading US-based investment and insurance company, are expected to mobilise the money on behalf of ILFS AMC from off-shore investors. The minimum investment in the fund is $1 million with units in denomination of Rs 1 lakh. The AMC will charge an initial expense of 1 per cent to the scheme's corpus and units will not be listed on any bourses.

On the other hand, the minimum investment in Discovery Fund has been kept at Rs 5000. The AMC plans to chargethe entire initial expense to the scheme's corpus. ``We intend to target specific sections of investors which will help us bring down the initial expense,'' said the official.

IL&FS, either directly or through its affiliates plans to invest Rs 10 crore in the scheme and proposes to arrange the same amount to be invested into the scheme. This means that almost Rs 20 crore is likely to flow into the domestic fund from IL&FS alone. In its bid to stand out, the AMC is issuing warrants alongwith units in both the schemes in the ratio of 2:1. The warrants will be exercisable at NAV between 3 months and 18 months from the close of the initial offer. The warrants will be detachable and could be traded independently of the units. The domestic fund are likely to be traded at BSE and NSE.

This is for the second time that a fund will issue warrants. Earlier, SBIMF's Magnum Multiplier Scheme 1990 had issued warrants which entitled investors units at par after three years.The disadvantage of warrants is that onceconverted into units, they bloat the unit capital and bring down the net asset value.