Last week when I covered a note on Union Midcap Fund, I mentioned how the equity markets have been affected due to the outspread of coronavirus globally. Added to the existing woes of domestic and international macro and microeconomic factors, another news broke on Friday, March 6, 2020, that caused markets to crash further.

A hot favorite stock of one of the leading bank’s NPAs couldn’t be reduced and the governance issues that came to light have disrupted and hurt investors deeply. Unfortunately, the possibility of further turbulence can in no way be ruled out.

[Read: How Yes Bank’s Fall Impacts Your Mutual Funds]

Despite the value buying opportunities, mid-caps and small caps are going to have a strain along with little pressure on large caps as well. In such times, Indiabulls Multicap Fund is launched.

Indiabulls Mutual Fund is of the view, currently focusing only on one segment of market cap is not the best bet for investment. Hence, a fund that has the flexibility to invest across the market capitalization can generate returns for the investors in long run.

That’s why Indiabulls Multicap Fund, an open-ended equity scheme which will invest predominantly across market cap segments (i.e. large-cap, mid-cap, and small-cap), was launched.

Being a multicap fund, it is well-diversified, due to the flexibility to invest in the best ideas within the cap curves, the downside risk involved is minimized in turbulent times and can provide better risk-adjusted returns compared to single cap funds.

Multi-Cap funds seek to invest across market capitalization segments from large-cap to mid-cap to small-caps. The fund manager has complete flexibility to manage allocation between different sectors, market cap segments, styles, etc.

IMF would typically maintain a maximum allocation towards Large Caps and can go up to 80% based on prevalent market conditions. Allocation to large caps would provide stability to the portfolio with reasonable returns, whereas its exposure to Mid and Small Caps would be alpha accretive.

[Read: Why You Should Not Ignore Personalized Asset Allocation While Investing]

Note that on the risk-return curve, a multi-cap fund fits in between large-cap funds and mid-and small-cap funds. So, do note that although multi-cap funds come with some safety element of large caps, they also carry the risk associated with mid and small caps. Hence investors should consider investing in multi-cap funds only if their risk appetite permits, i.e. it is high, and if the investment time horizon is at least 5 years.

Table 1: Details of Indiabulls Multicap Fund

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the asset allocation will be as follows:

Table 2: IMF ‘s Asset Allocation

Instruments	Indicative Allocations (% of net assets) (Minimumn – Maximum)	Risk Profile (High/ Medium/ Low)
Equity and Equity Related instruments	65% to 100%	High
– Large Cap Companies	– 50% to 100%	High
– Mid Cap Companies	– 0% to 30%	High
– Small Cap Companies	– 0% to 20%	High
Debt (including Money Market Instruments & units of debt & liquid category schemes).	0% to 35%	Low to Medium

Large Cap, Mid Cap, Small Cap companies are those companies which are classified as such by Securities and Exchange Board of India (SEBI) or Association of Mutual Funds in India (AMFI) from time to time. In case of subsequent updation /change suggested by SEBI/AMFI, fund manager will rebalance the portfolio within 30 days.

At present the large Cap, Mid Cap & Small Cap companies are classified as below:

• Large Cap: 1st – 100th company in terms of full market capitalization.
• Mid Cap: 101st – 250th company in terms of full market capitalization.
• Small Cap: 251st company onwards in terms of full market capitalization.

 (Source: Scheme Information Document)

What will the Investment Strategy be?

Equity Investments:

The Indiabulls Multicap Fund would adopt a top-down and bottom-up approach of investing and will aim at being diversified across various industries and / or sectors and/ or market capitalization. The investment emphasis of the scheme would be on identifying companies with sound corporate management and prospects of good future growth.

Essentially, the focus would be on stocks driven by long-term fundamentals. However, short term opportunities would also be seized, provided underlying values support these opportunities.

A portion of the scheme will also be invested in IPOs, emerging sectors, concept stocks, and other primary market offerings that meet our investment criteria. The scheme would invest a substantial portion of its investible assets (65% – 100%) in equity and equity-related instruments.

The scheme may have prudent exposure to Futures & Options (F&O) to capture opportunities arising out of market imperfection and to hedge the portfolio, whenever necessary.

Stock identification process would include:

• Company and business analysis,
• Industry analysis,
• Future plans,
• Projections,
• Technical analysis and
• Valuations.

Based on the analysis of various financial and non-financial parameters, the stocks will finally be shortlisted for the portfolio construction process. The fund manager of the IMF scheme would also take cues from the global macroeconomic trends, Government policy and monetary policy actions to decide on the asset allocation.

The allocations will be within the limits defined in the asset allocation table. Apart from in-house research, external research is used as an important source of information. Various magazines, journals, newspapers, and databases also help in the research process.

The Scheme will have a reasonably well-diversified portfolio without being overly diversified. The investment environment, valuation parameters, return ratios, competitive positioning, and other investment criteria will determine the sector allocation, stock weights, and investment style.

The fund manager will construct the portfolio using a bottom-up approach and will leverage the flexibility to invest across the market capitalization.

Debt Investments:

• The fund endeavours to invest in quality debt instruments across maturities based on the interest rate outlook
• The fund will be actively managed
• The scheme invests in debt instruments such as government securities, corporate debentures and bonds, quasi-government bonds and money market instruments

The IMF will retain the flexibility to invest in the entire range of debt instruments and money market instruments. Investment in Debt securities and Money Market Instruments will be as per the limits in the asset allocation table of the Scheme, subject to permissible limits laid under SEBI (MF) Regulations.

The actual percentage of investment in various fixed income securities will be decided after considering the prevailing political conditions, the economic environment (including interest rates and inflation), the performance of the corporate sector and general liquidity and other considerations in the economy and markets. The investment management team is allowed full discretion to make a sale and purchase decisions within the limits established.

Who will manage the Indiabulls Multicap Fund?

Mr Veekesh Gandhi will manage the equity segment of the Indiabulls Multicap Fund and Mr Vikrant Mehta will manage the debt segment.

Mr Veekesh Gandhi holds an MBA (Finance) from the University of Hartford (USA). He has more than 18 years of experience in the field of Banking and Capital markets.

He was earlier associated with DSP Merrill Lynch Ltd, SSKI Securities and Motilal Oswal Securities, wherein he was responsible for tracking the BFSI sector and research on investment ideas. He is extensively research oriented and follows a Top-Down approach for Large Caps and Bottom-Up approach for Mid / Small Cap. He is well versed in Indian and Global Macros.

Some of the schemes which Mr Veekesh Gandhi manages/co-manages at the fund house include Indiabulls Blue Chip Fund, Indiabulls Value Fund, Indiabulls Savings Income Fund, Indiabulls Tax Savings Fund, Indiabulls Arbitrage Fund, Indiabulls Nifty50 Exchange Traded Fund, and Indiabulls Equity Hybrid Fund.

Mr Vikrant Mehta is an M.S. in Engineering and a CFA from The Institute of Chartered Financial Analysts of India. He has 24+ years of fixed income and emerging markets experience across fund management, macro research, trading, and sales.

Prior to joining Indiabulls AMC, Mr. Mehta worked with PineBridge Investments, where he was the Head of Fixed Income at PineBridge India AMC. Subsequently, he was a sovereign rate and currency specialist for Asia, in his role as an Asian sovereign analyst with PineBridge. Vikrant’s other work assignments have been with NVS Brokerage, JM Morgan Stanley and Mata Securities.

Some of the schemes which Mr Vikrant Mehta manages/co-manages at the fund house include Indiabulls Value Fund, Indiabulls Savings Income Fund, Indiabulls Liquid Fund, Indiabulls Ultra Short Term Fund, Indiabulls Savings Fund, Indiabulls Tax Savings Fund, Indiabulls Arbitrage Fund, Indiabulls Income Fund, Indiabulls Banking & PSU Debt Fund, Indiabulls Nifty50 Exchange Traded, Indiabulls Equity Hybrid Fund, and Indiabulls Overnight Fund.

The outlook of Indiabulls Multicap Fund:

To achieve the objective, experienced fund managers will actively manage the Indiabulls Multicap Fund to create a well-diversified portfolio with no market cap bias. For the selection of stocks to hold in the portfolio, internal research will be done using a top-down approach.

Hence, given the asset allocation, the fortune of the Indiabulls Multicap Fund will be closely hinged on the performance of the stocks held in the portfolio. With no restriction towards any market cap, the investment strategy of the fund would be to invest in opportunities across sectors and market cap in line with the Fund Managers’ conviction.

Moreover, the Indiabulls Multicap Fund holds the flexibility to have a higher allocation to any market cap category to suitably position the portfolio in line with the investment outlook. But constructing the portfolio would be a challenging task for the fund managers in the present scenario. Despite the mid-cap and small caps, stocks being available at discounted prices, however the large caps stocks are still at high valuations. Hence, the active management of stocks remains the key to wealth creation.

Note that being a multi-cap fund, IMF does carry a notch higher risk compared to typical large-cap funds; they are usually less volatile than mid-cap funds.

[Read: Best Multicap Funds to Invest in 2020 to Ride the Economic Recovery Wave]

This article first appeared on PersonalFN here