I can’t find the link now, but I’d read recently in either one of the newspapers or one of the three billion websites I go through daily that Vulture Funds are looking at opportunities in India. The article made it sound as if this is a bad thing, and I’m not too sure if thats the case.
Here’s what Wikipedia has to say on Vulture Funds:
Vulture funds target not only companies but also whole countries. In the recent case of Argentina, for example, vulture funds bought up a large part of the public debt at very low prices (sometimes only 20% of their nominal value), and then attempted to cash them when the Argentine economic crisis exploded in 2002. A single vulture fund run by Kenneth B. Dart, heir to the Dart Container fortune, claimed 700 million USD in a lawsuit against the government of Argentina.
Not all Vulture funds are bad: almost a year ago, I was told about the PATF TEP Fund, which, conceptually, I found very interesting. I think it qualifies as a Vulture Fund, but I could be wrong.
Suppose someone needs to exit an insurance policy: the no-claim bonus is lost and an exit load has to be paid. The insurance company also loses out on a regular, otherwise assured ,investment. The Insurance company informs the PATF TEP Fund, which, for a lower (or no) exit load, offers the customer his money back. The Fund then pays for the entire duration of the policy, and collects the returns and the no-claim bonus. Everyone benefits. The money for paying off the original insurer comes from those who invest in the fund.
On the face of it, returns may not be as attractive as those for mutual funds, but this looks like a less volatile investment, and can be a part of a diversified portfolio. I’m not sure of the risks involved, though, or even if there are other, similar products.
Note: The above post is based on hearsay and hence could be incorrect. I don’t endorse any Vulture Fund or the PATF TEP Fund. Its up to you, in consultation with your financial advisors, to make your decisions; Financial consultancy is not my area of expertise.