Tata Mutual Fund has a history of launching numerous NFOs back-to-back in the past. With the launch of Tata Focused Equity Fund (TFEF)Tata Mutual Fund is adding another fund to its table 

Tata Focused Equity Fund (TFEF), an open-ended diversified equity scheme which will follow a focused approach of investing in equity and equity-related instruments. It aims to focus only on a maximum of 30 stocks of companies across market capitalization segments i.e. large-cap, mid-cap, and small-cap and across sectors.

As per SEBI regulations, a focused fund is not allowed to hold more than 30 stocks and invest a minimum of 65% of its assets in equity and equity-related instruments, which exactly what TFEF is following. But it will also allocate some portion (up to 35% of its total assets) to debt and money market instruments from an asset allocation standpoint and to mitigate the risk.

On the risk-return matrix, TFEF owing to its focussed approach while investing in equities would be a very high-risk, very high-return investment proposition, although the fund holds the flexibility to invest across market capitalisation segments and is sector agonistic.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

So, TFEF is suitable for investors with a stomach for very high risk and an investment time horizon of at least 7-8 years while seeking capital appreciation.

Table 1: Details of Tata Focused Equity Fund

Type An Open-ended equity scheme investing in maximum 30 stocks across market caps (i.e. multi-cap). Category Focused Fund
Investment Objective To generate long term capital appreciation by investing in equity & equity related instruments of maximum 30 stocks across market caps.

However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The scheme does not assure or guarantee any returns.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans  • Regular
• Direct
  • Growth
  • Dividend
    • Re-investment Facility*
    • Pay-out Facility
    • Sweep Facility
*Default option
Entry Load Nil Exit Load 1% of the applicable NAV, if redeemed/switched out on or before expiry of 365 days from the date of allotment.
Fund Manager Mr Rupesh Patel Benchmark Index S&P BSE 200 TRI
Issue Opens 15 November, 2019 Issue Closes: 29 November, 2019

 (Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the scheme’s asset allocation will be as under:

Table 2: TFEF’s Asset Allocation

Instruments Indicative allocations (% of net assets) Risk Profile
  Minimum Maximum High/Medium/Low
^Equity and equity related instruments 65 100 Medium to High
Debt* and money market instruments 0 35 Low to Medium
Units issued by REITs & InvITs# 0 10 Medium to High

^ Subject to overall limit of 30 stocks across market capitalization.

*Includes securitized debt (excluding foreign securitized debt) up to 70% of the Debt instruments of the Scheme. The Scheme shall not invest in foreign securitized debt and credit default swaps.

The Scheme will comply with all the applicable circulars issued by SEBI as regard to derivatives viz. SEBI Circular no. SEBI/MFD/CIR No. 03/ 158 /03 dated June 10, 2003, no. DNPD/Cir-29/2005 dated September 14, 2005, no. SEBI/IMD/CIR No. 9/108562/07 dated November 16, 2007, no. Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010.The cumulative gross exposure to equity, equity related instruments, debt, money market instruments and derivatives shall not exceed 100% of the net assets of the scheme. The maximum exposure to derivatives will not exceed 50% of the net assets of the scheme.

The scheme does not seek to invest in foreign securities.

The Scheme may participate in repo/reverse repo in corporate debt securities.

The Fund may engage in short selling of securities in accordance with the framework relating to short selling and securities lending and borrowing specified by SEBI.

Not more than 20% of the net assets of the fund can be deployed in stock lending. The scheme would limit its exposure, with regards to securities lending, for a single intermediary, to the extent of 5% of the total net assets of the scheme at the time of lending. Pending deployment of the funds in securities in terms of investment objective of the Scheme, the AMC may park the funds of the Scheme in short term deposits of the Scheduled Commercial Banks, subject to the guidelines issued by SEBI vide it’s circular dated April 16, 2007, as may be amended from time to time.

#A mutual fund may invest in the units of REITs and InvITs subject to the following:

  • No mutual fund under all its schemes shall own more than 10% of units issued by a single issuer of REIT and InvIT; and
  • The scheme shall not invest –
  • more than 10% of its NAV in the units of REIT and InvIT; and
  • ii. more than 5% of its NAV in the units of REIT and InvIT issued by a single issuer.

(Source: Scheme Information Document)

What will be the Investment Strategy?

The investment strategy for Tata Focused Equity Fund would be to achieve the investment objective by constructing a portfolio of equity and equity-linked instruments. The strategy would be to construct a diversified portfolio across market capitalization and sectors.

However, in terms of diversification, the number of stocks in the portfolio would be restricted to 30. The investment strategy is to focus on creating long term wealth for investors by constructing a portfolio of stocks based on their fundamental attributes like the potential for growth, management quality, capital efficiency etc. and valuations.

The fund would also actively explore tactical opportunities created on account of any temporary market-specific, industry-specific and company-specific developments.

Who will manage the Tata Focused Equity Fund?

Mr Rupesh Patel will be managing the Tata Focused Equity Fund. He holds a Bachelors degree in Civil Engineering (B.E.) and has an MBA in Finance to his credit.

Mr Patel has 19 years of work experience in Equities and Investment research. Since 2008 he has begun his journey with Tata Asset Management Ltd as a DGM for investments to grow as a Fund manager now. Prior to it, he has worked with Indiareit Fund Advisors Pvt. Ltd as Asst. Vice President for 8 months years. Besides that, for 7 years he worked as a Deputy General Manager with Credit Analysis & Research Ltd.

Currently at the Tata Mutual Fund Mr Patel manages Tata Large Cap Fund, Tata India Tax Savings Fund, Tata Infrastructure Fund, Tata Mid Cap Growth Fund, Tata Ethical Fund and Tata Offshore India Sharia Scheme.

Table 3: Performance of schemes managed by Mr Rupesh Patel

Scheme Name Benchmark Name Managed Since Scheme Returns (%) Benchmark Returns (%)
Tata Infrastructure Fund Nifty 50 TRI December 2013 – September 2019 14.57 12.40
Tata Mid Cap Growth Fund April 2016 – September 2019 11.64 13.33
Tata Ethical Fund September 2018 – September 2019 4.56 6.34
Tata India Tax Savings Fund S&P BSE SENSEX – TRI April 2015 – September 2019 12.63 9.99
Tata Large Cap Fund June 2018 – September 2019 7.19 8.61

(Source: ACE MF, PersonalFN Research)
(Data as on November 18, 2019)

As can be seen from the performance table, out of five schemes managed by the fund manager only two schemes have been outperforming their respective benchmark index. Hence the management style does not give much confidence to investors.

The outlook for Tata Focused Equity Fund:

In an endeavour to achieve the investment objective, the fund manager of the Tata Focused Equity Fund will invest across market cap and sector agnostic using a bottom-up approach of stocks. The portfolio will comprise of only 30 stocks of companies that have the ability to grow over in the long run and the construction is based on Growth At Reasonable Price (GARP) philosophy.

Illustration: Investment Philosophy Used for Portfolio Construction

(Source: Tata Focused Equity Fund Presentation)

However, in the current market environment, to construct a robust portfolio, that could generate higher returns is going to be a difficult task. Although it does offer value buying opportunities in the small-cap and mid-cap segments due to market corrections. Even the large-cap segment witnessed a downfall, but it comprises of large blue-chip companies with strong balance sheets and proven track records.

Besides Q2FY20 corporate earnings of a number of heavyweights of bellwether index –the Nifty 50–were in line with street expectations or have beat the estimates. Ostensibly it is their best operational performance in more than two years even amid the economic slowdown. 

But amid a scenario where wage growth has slowed, economic growth has slowed and is expected to slow further, the credit risk is high, people are losing jobs, there are losses due to inundation caused by incessant rainfall in many parts of the country, among a host of other factors; it would weigh on corporate earning even as the credit tap is opened.

So avoid getting swayed by the forward statements in the earnings. Sadly, the oldest trick in the book of ‘estimating earnings’ played out is that the near-term estimates are being toned down while the future earnings estimates are increased.

The impact of corporate earnings on your mutual fund portfolio would be hinged on the portfolio characteristics of the schemes you hold in your portfolio. Hence, set realistic post-tax return expectations; don’t get carried away, for the fortune of the fund would be closely linked to a maximum of 30 stocks held in the portfolio (multi-cap) managed by the fund manager to deal with the risk to achieve the stated objective is crucial.

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