While both equity and debt markets have gone through extreme turbulence, many fund houses have sought balanced advantage funds as a resolution to combat the volatility and capitalise on the gains.
Equities have finally rallied up on account of the recent corporate tax rate cut, which boosted the Inc.’s earnings of several heavyweights of bellwether index-the Nifty 50-which were in- line with street expectations or have beat the estimates, in turn to reviving the market sentiment, However, the probable volatility going forward cannot be ruled out.
And in the debt markets, the ripple effect of downgrading on account of defaulters has eroded investors’ hard-earned money and disappointed them.
Hence there is a growing need for balanced funds, as the investment climate of both the prime asset classes have become uncertain. This raises the pertinent question, is there a way out for investors?
Few fund houses have launched Balanced Advantage Fund, an open-ended scheme that is a sub-category of hybrid funds, which was originally a subset of balanced funds. But, since the re-categorisation of mutual funds, this was a newly formed category.
The balanced advantage/dynamic asset allocation fund mitigates the risk by dynamically managing the allocation between equity and debt as per the prevailing market valuation and sentiment in each asset class. If need be, it captures potential gains by using arbitrage opportunities.
ITI Mutual Fund is no different. It launched ITI Balanced Advantage Fund (ITIBAF), an open-ended balanced advantage / dynamic asset allocation fund that is a sub-category of hybrid funds. It aims to optimise on equity and debt investment to give the best of both worlds.
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ITIBAF has the flexibility to vary its equity exposure between 0%-100%. But under normal circumstances, it aims to allocate its assets between 65% -100% in equities, equity related instruments. Plus, it will have exposure to money market instruments (including cash and reverse repo), debt instruments with residual maturity up to 3 years, and units issued by REITs and InvITs.
In terms of the risk-return matrix, this scheme is placed at moderate-risk, moderate-return investment proposition.
Table 1: Details of ITI Balanced Advantage Fund
| Type | An open-ended dynamic asset allocation fund. | Category | Hybrid: Dynamic Asset Allocation |
| Investment Objective | To seek capital appreciation by investing in equity and equity related securities and fixed income instruments. The allocation between equity instruments and fixed income will be managed dynamically so as to provide investors with long term capital appreciation. However, there can be no assurance that the investment objective of the scheme will be realized. |
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| Min. Investment | Rs 5,000 and in multiples of Re. 1/- thereafter | Face Value | Rs 10 per unit |
| Plans |
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Options |
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| Entry Load | Nil | Exit Load | 10% of the units allotted may be redeemed without any exit load, on or before completion of 12 months from the date of allotment of units. Any redemption in excess of such limit in the first 12 months from the date of allotment shall be subject to the following exit load.
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| Fund Manager | Mr George Heber Joseph & Mr Pradeep Gokhale | Benchmark Index | CRISIL Hybrid 50+50 – Moderate Index |
| Issue Opens | December 09, 2019 | Issue Closes: | December 23, 2019 |
(Source: Scheme Information Document)
How will the scheme allocate its assets?
Under normal circumstances, the asset allocation pattern will be as follow:
Table 2: ITIBAF’s Asset Allocation
| Instruments | Indicative allocation (% of net assets) | Risk Profile | |
| Maximum | Minimum | High/Medium/Low | |
| Equity & Equity related instruments including derivatives | 100% | 65% | High |
| Money market instruments (including cash and reverse repo) and debt instruments with residual maturity up to 3 years | 35% | 0% | Low to Medium |
| Units issued by REITs and InvITs | 10% | 0% | Medium to High |
(Source: Scheme Information Document)
What will the Investment Strategy be?
The ITI Balanced Advantage Fund is designed to dynamically change its allocation across equity, cash, debt, and derivatives based on the prevailing market conditions. The fund managers will increase the exposure to equity when market valuations are attractive and will prune down the equity exposure by increasing cash or debt exposure and/or hedging when equity markets get expensive or experience volatility.
The fund managers will use an in-built proprietary in-house quantitative approach to guide the asset allocation decision. The quantitative approach looks at equity markets across three parameters—momentum, volatility, and valuations—to decide the appropriate allocation to the same.
The allocation to debt is the residual number that is arrived at after deciding the equity allocation. The asset allocation decision is reviewed on an ongoing basis and is dynamically linked to movements in market variables.
Who will manage the ITI Balanced Advantage Fund?
ITI Balanced Advantage Fund will be co-managed by Mr George Heber Joseph and Mr Pradeep Gokhale.
Mr George Heber Joseph joined ITI Asset Management Limited in November 2018 and has over 16 years of work experience in Fund Management, Equity Research and Capital Markets. He holds a bachelor’s degree in English language & Literature (BA) and commerce (BCom). Mr George is also a qualified member of associate member of Chartered Accountants of India and an associate member of Cost and Management Accountants of India.
Past Experience: Last designation – Senior Fund Manager (Vice President Grade & Key Management Personnel) – ICICI Prudential Asset Management Co.Ltd. He has been associated with the Fund Management Team of ICICI Prudential Asset Management Company Limited from 2008 to 2018. He has tracked various sectors, wide variety of stocks, managed flagship funds like Multicap (ICICI Prudential Multicap Fund), ELSS (ICICI Prudential Long Term Equity Fund -Tax Saving), Child Care (ICICI Prudential Child Care Gift Plan) and was also responsible for various closed ended schemes of ICICI Prudential Mutual Fund with assets under management exceeding Rs. 10000 cores.
During his tenure he was also heading the Portfolio Management Services Division, was responsible to oversee fund managers activities, managing research analysts, performance measurement and work as a sounding board for fund managers. In his previous assignments he has been associated with organizations like DSP Merrill Lynch Ltd, Wipro Ltd, MetLife India, Cholamandalam Investments & Finance Company Ltd and Tanfac Industries Ltd where he has handled fund management and corporate treasury responsibilities.
At the fund house currently, he co-fund manages ITI Liquid Fund, ITI Overnight Fund, ITI Multi Cap Fund, ITI Long Term Equity Fund and ITI Arbitrage Fund.
Mr Pradeep Gokhale joined ITI Asset Management Limited in November 2018 and has over 23 years of work experience in Fund Management, Equity Research, Credit Evaluation & ratings. He has a bachelor’s degree in commerce (B. Com), is a Chartered Accountant and CFA.
Experience: Last designation – Senior Fund Manager – Equities (Key Management Personnel), Tata Asset Management Ltd. He has been associated with the Fund Management Team of Tata Asset Management from September 2004 to October 2018. He has managed funds across the spectrum such as Large cap (Tata Large Cap fund), multi cap (Tata Large and Midcap fund, equity portion of Tata Hybrid Equity Fund), offshore fund (Tata India Offshore Opportunities Funds) and thematic funds (Tata Ethical fund) with assets under management exceeding Rs 5000 crores.
During his tenure he was also responsible for heading the equity research function and tracking various sectors and wide variety of stocks. Prior to joining Tata Asset Management, he was Head of Financial Sector and Securitisation Ratings at CARE Ratings Ltd. He joined CARE Ratings in April 1995 and has handled multiple rating and advisory assignments of companies across manufacturing, financial services and other services sectors. He has also worked in corporate finance departments of companies like Bombay Dyeing, Tata International and Lubrizol India Ltd.
At the fund house currently, he co-fund manages ITI Multi Cap Fund and ITI Long Term Equity Fund.
The outlook for ITI Balanced Advantage Fund
ITI Balanced Advantage Fund aims to achieve the scheme’s objective of capitalizing gains with reduced risk by following the asset allocation approach with its proprietary model. The fund managers would make use of hedged and unhedged equity and arbitrage to avoid any downside risks in the volatile markets. Hence the performance of the scheme weighs on portfolio and risk management strategies employed by the fund managers.
With dynamic allocation across asset class, ITIBAF is expected to be moderately volatile, while its returns too would be moderate. The effectiveness of the model the fund house plans to follow to dynamically allocate assets will be tested over complete market cycle.
Considering the maximum skewness of the assets towards equity allocation, the fund performance hinges on the equity stocks held in the portfolio. So, it remains to be seen how the fund managers plays the investment strategy in the endeavour to accomplish the stated investment objective of ITIBAF.
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