Veer Sardesai is an MBA from the Kelley School of Business, USA. He is a Certified Financial Planner and the chief executive of Sardesai Finance - Financial Planners.

Up to 25% off' was the sign hanging on top of a clothes store.

As my friend, Pranav, and I chatted over coffee in the opposite shop, we saw numerous shoppers drawn into the store by that sign. I was quite sure many of them had no intention of buying clothes till the sign caught their eye.

I would not be surprised if, a week later, the store would have got rid of their entire inventory.

The opportunity to buy at 'lower than market price' always attracts buyers in droves. The same logic holds for mutual funds.

In fact, one would expect that if someone was to sell a mutual fund worth Rs 100 for Rs 85, the response would be mind-boggling. However, a similar opportunity has been available to us for a number of years, yet no one seems to care about it.

The Morgan Stanley Growth Fund offers one such opportunity. This fund has been around for 12 years and has done better than the stock market indices -- the BSE Sensex or the NSE Nifty -- during the period. Yet, you can buy it at a 15% discount!

What's special about it?

The MSGF is a close-ended mutual fund. That means the mutual fund company will not take fresh money from investors after its launch. It will only continue to invest the money they have already collected from investors at the time of the New Fund Offering or launch of the fund.

That does not mean you cannot invest in it now. Close-ended funds are traded on the stock exchange just like shares of a company like Infosys [Get Quote].

Just as you would place an order with your broker to buy Infosys shares, you can place an order to buy Morgan Stanley units. This is done so that existing investors can sell their holdings by selling their units on the stock exchange.

Among the many reasons this kind of a mutual fund was conceived, here's one of the most important ones. With a close-ended fund, the fund manager knows a particular amount will be with him for the next 15 years. This will help him make appropriate long term investments. He does not have to worry that investors will suddenly redeem the money (sell their units) with the fund. As a result, he is in a position to put the investors' long-term interests ahead of the fund's short-term performance. This helps greatly in giving consistency to the management of the fund. Hence, it provides superior returns in the long term.

The MSGF was launched in 1994 and is a close-ended fund for 15 years. It will mature in February 2009. On that day, the fund will pay the Net Asset Value to its unit holders.

What's the deal?

This is it.

As on July 20, 2006, an investor can buy the MSGF units from the market for Rs 32.8. The NAV of the fund is Rs 38.54.

The NAV is the amount the unit holder receives when the fund is redeemed upon maturity. So, when you return the units to the company in February 2009 when it matures, you will get the NAV.

If the NAV remains constant till maturity, you will receive Rs 38.6 for the Rs 32.8 that you have paid. This is almost a 'bonus' of 15%, which is not offered by other mutual funds.

Of course, we all know the NAV of equity mutual funds does not remain constant. If the stock market falls, like all other equity funds, its NAV is also likely to fall.

But, as of now, you are guaranteed a return of 15% over and above that of an equally well-managed open-ended mutual fund.

Why the discount?

I am not sure anyone has the right answer to this question.

I do remember a similar situation existed for close ended funds in the 1970's & 1980s in the US market.

Burton Malkiel, author of the best-selling book A Random Walk Down Wall Street, recommended the purchase of such funds that were trading at a steep discount to their NAV. He suggested it on the premise that this discount would soon evaporate and buyers would profit from it. It did happen in the US and may very well happen in India.

In any case, for those of us who consider ourselves long-term investors, surely we can wait less than three years and receive the NAV upon maturity of the fund.

Of course, we must understand that the movement of the stock market will have a direct impact on the NAV of the fund, just like in other equity mutual funds. Over the last year or so the discount has varied between 14% and 20%, so it may be worth tracking the discount (by checking the NAV regularly) and buying the units when the discount widens.

Knowing this, should we still go ahead and buy units? That will be a call only you can make. As my friend Pranav would say: "If we wait too long, the 'discount sale' may be over!"