The recent market rally is due to the announcement of various reforms to bolster the growth of the sluggish economy, with the uptick in consumer demand during festivities and easing of trade tensions. This provides an opportunity to do value-buying in mid and small cap space, but small caps are yet to recover.
However, large caps and mid-caps are doing better, but due to the volatile nature of the markets, relying only on small caps or mid-caps to earn returns can be hazardous with the extreme risk involved. But if one considers mid and large cap for investment, one can accumulate wealth over the long term. As one gets an opportunity to invest in stability of large-caps and high growth potential of midcaps.

Hence among several fund houses even Mahindra Mutual Fundhas launched a large & mid cap fund, Mahindra Top 250 Nivesh Yojana.It is an open-ended equity scheme that will invest predominantly in stocks of large and mid-cap companies.

Mahindra top 250 Nivesh Yojana will follow the asset allocation limits to allocate its assets between 35% to 65% investment in equity & equity related instruments of large-cap and mid-cap companies each. The fund may also allocate utmost 30% of its assets to equities and equity-related securities of other than large-cap and mid-cap companies with the remaining allocation to debt instruments, money market instruments, and units issued by REITs and InvITs.

So when you plan for long-term goals, you want the stability of large-caps along with the agility of mid-caps in the journey of wealth creation and accomplishing financial goals. Additionally, if you have the stomach for moderately high risk, you may skew your equity portfolio to a Large & Mid-cap fund.

Table 1:  Details of Mahindra Top 250 Nivesh Yojana

Type An open-ended equity scheme investing in both large-cap and mid-cap stocks Category Large and Midcap Fund
Investment Objective To seek long term capital growth through investments in equity and equity-related securities of both large-cap and mid-cap stocks.
However, there can be no assurance that the investment objective of the Scheme will be achieved.
Min Investment Rs 1,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
  • Regular
  • Direct
  • Growth
  • Dividend (Pay-out, Reinvestment*)
*Default option
Entry Load Nil Exit Load If redeemed/ switched on or before 365 days from the date of allotment:
  • An Exit Load of 1% is payable if Units are redeemed / switched-out up to 1 year from the date of allotment;
  • Nil if Units are redeemed / switched out after 1 year from the date of allotment.
Fund Manager Mr V. Balasubramanian Benchmark Index NIFTY LargeMidcap 250 TRI Index
Issue Opens: December 06, 2019 Issue Closes: December 20, 2019

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, it is anticipated that the asset allocation of Mahindra Top 250 Nivesh Yojana will be as follows:

Table 2: Mahindra Top 250 Nivesh Yojana’s Asset Allocation

Instrument Indicative Allocation(% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity related Securities^ 80 100 Medium to High
a) Large Cap Companies* 35 65 Medium to High
b) Mid Cap Companies# 35 65 Medium to High
c) Other than Large Cap and Mid Cap Companies 0 30 Medium to High
Debt and Money Market Securities (including TREPS (Tri-Party Repo), Reverse Repo) 0 20 Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High

^including derivative instruments to the extent of 50% of the Net Assets of the Scheme. Investment in derivatives shall be for hedging, portfolio balancing, and such other purposes as may be permitted from time to time under the Regulations and subject to guidelines issued by SEBI/RBI from time to time.

*Definition of Large Cap Companies: 1st – 100th company in terms of full Market Capitalization.

#Definition of Mid Cap Companies: 101st – 250th company in terms of full Market Capitalization.

For the purpose of this definition(s), the list of stocks prepared by AMFI in this regard will be adopted.
The list of stocks to determine Large Cap and Mid Cap companies will be decided on a half-yearly basis post-release of the updated list of stocks by AMFI every six months which is based on the average full market capitalization data of the previous six months of the stocks as on the end of June and December of each year. In case of deviation, the portfolio of the Scheme would be rebalanced to bring it in line with the updated list within one month from the date of release of the updated list of stocks by AMFI.
Subject to the Regulations and applicable regulatory guidelines as may be issued from time to time, the Scheme may also engage in securities lending not exceeding 20% of the nett assets of the Scheme.
The Scheme shall not invest in securitised debt, credit default swaps and repos in corporate bonds. The Scheme does not propose to invest in foreign securities. The Scheme shall not engage in short selling
The cumulative gross exposure through investments in equity and equity-related securities, debt securities, money market instruments, units issued by REITs & InvITs and exposure in derivatives’ positions shall not exceed 100% of the net assets of the Scheme

(Source: Scheme Information Document)

What will be the Investment Strategy?

The aim of the Mahindra Top 250 Nivesh Yojana is to seek growth and deliver above benchmark returns by providing long term capital growth from an actively managed portfolio, comprising primarily large cap and mid cap stocks. The scheme aims to be predominantly invested in equity and equity-related securities.

The fund manager will endeavour to achieve this by maintaining a minimum of 80% allocation to equity and equity related securities, out of which allocation of at least 35% each will be towards large cap stocks and mid cap stocks.
Depending upon the market conditions and outlook, the fund manager will adopt a growth or value approach while investing. Investment could also be made towards fixed income securities including money market instruments.

[ReadGrowth v/s Value Investing: Which Is Better Of The Two In Current Times?]

A top-down and bottom up approach will be used to invest in equity and equity-related instruments. Investments will be based on the fund management team’s analysis of business cycles, regulatory reforms, competitive advantage, etc.
The fund manager in selecting stocks will focus on the fundamentals of the business including:

  • The profitability,
  • The industry structure,
  • The quality of management,
  • Sensitivity to economic factors,
  • The financial strength of the company,
  • The valuation,
  • And the key earnings drivers.

The fund manager of the scheme will maintain a diversified portfolio spread across various industries/sectors in order to mitigate the concentration risk.

As per the asset allocation pattern indicated above, for investment in debt securities and money market instruments, the scheme may invest a part of its portfolio in various debt securities issued by corporates and / or state and central government. Such government securities may include securities which are supported by the ability to borrow from the treasury or supported only by the sovereign guarantee or of the state government or supported by Government of India / state government in some other way.

With the aim of controlling risks, rigorous in-depth credit evaluation of the instruments proposed to be invested in will be carried out by the fund management team. The credit evaluation includes:

  • A study of the operating environment of the company,
  • The past track records
  • The future prospects of the issuer,
  • The short as well as long-term financial health of the issuer.

Who will manage Mahindra Top 250 Nivesh Yojana?

Mr V Balasubramanian will manage the scheme actively. He is a Certified Associate of the Indian Institute of Bankers (CAIIB) and holds an M. Com degree. He has over 38 years of work experience of which around 20 years have been in the Mutual Fund Industry and 8 years in Treasury of a nationalized bank.

Before joining Mahindra Asset Management Company Pvt. Ltd as the Chief Portfolio Strategist of Equity in July 2018, he was a CIO at IDBI Asset Management Company Pvt. Ltd. for 8 years. Prior to it, he worked as a Senior Manager in Indian Bank for 8 years.

Currently, some of the schemes, that he manages at the fund house include Mahindra Mutual Fund Kar Bachat Yojana, Mahindra Unnati Emerging Business Yojana and and Mahindra Rural Bharat and Consumption Yojana and Mahindra Pragati Bluechip Yojana..

The outlook for Mahindra Top 250 Nivesh Yojana:

In order to achieve the investment objective, the fund manager of the Mahindra Top 250 Nivesh Yojana will invest predominantly in stocks of companies that are a part of the large-cap and mid-cap segment of the market capital, using a combination of bottom-up and top-down approach through active management.

Currently, as mentioned earlier, Q2 India Inc’s earnings of a number of heavyweights of the index were in line with street expectations or have beat the estimates. Due to the increase in consumption demand–particularly in the auto and consumer durable space—due to festival season; the RBI being accommodative in its monetary policy actions and implementation of successive rate cuts have proved supportive for Indian equities. Ostensibly, it is their best operational performance in more than two years even amidst the economic slowdown and the markets rallied as seen below.

Graph: Improving large cap, beaten mid and small caps

Base take as Rs 10,000
Data as of December 7, 2019
(Source: ACE, MF)

Currently, the Indian economy is showing no signs of recovery (indicated by the recent GDP figure of 4.5% shared by MOSPI) from weak consumer demand faced due to liquidity constraints, rising unemployment levels, the credit risk is high. Furthermore, there are losses due to inundation caused by incessant rainfall in many parts of the country, among a host of other factors, hence construction of the portfolio is challenging.

Although there is an opportunity to do some value-buying, valuations seem stretched. The trail P/E of the S&P BSE Sensex and the large-cap index is currently at 28.6x and 25.6x. Likewise, even the mid-cap space, after some correction, the P/E multiple is at 29.7x.

[ReadMarket P/E Ratio Driving Your Mutual Fund Decisions? Big Mistake!]

Hence, the fortune of the Mahindra Top 250 Nivesh Yojana would closely be linked to how the fund manager plays out the investment strategy in the endeavour to accomplish the stated investment objective.

This article first appeared on PersonalFN here

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