“Change is the only Constant” – Heraclitus, Greek Philosopher.

We are living in an ever-evolving world, our consumption patterns are changing day by day, and the way we socialize, shop, work, etc. has all changed over time, especially amidst the pandemic. Similarly, there are various fluctuations in the market due to several changes in macroeconomic variables which includes, economic growth, inflation, policy rates, etc.

When it comes to investing, the changes in these factors may affect the market environment which may influence the performance of your investments and portfolio returns. Therefore, it is crucial to invest in a fund with a flexible approach that adapts to ever-changing market conditions to generate better risk-adjusted returns.

Given the current market scenario and the RBI’s recent announcement to raise interest rates once again by 50 basis points, the intensified market volatility is anticipated to continue in the near term. Thus, an investor’s mutual fund portfolio should include diversified equity funds like Multicap and Flexicap funds that aim to diversify their assets across market capitalization to survive high market volatility.

Flexi-cap funds allow fund managers more flexibility to move between large, mid, and small caps, and they will try to generate alpha from stock as well as market cap selection based on prevailing market conditions. Flexicap funds provide investors with an opportunity to generate optimal returns, as the Flexicap strategy helps balance the risk-reward ratio.

Baroda BNP Paribas Mutual Fund has launched Baroda BNP Paribas Flexicap Fund, it is an open-ended dynamic equity scheme investing across large cap, mid-cap, and small-cap companies. An all-season fund which seems to easily adapts to different market cycles, making it a good option for long-term wealth creation.

On the launch of this fund, Mr Suresh Soni, CEO at Baroda BNP Paribas Asset Management India said, “The top performing companies, sectors as well as market caps keep changing as the economy and businesses evolve. Hence, fund managers should be aware of and adopt an adaptable investing style when managing portfolios. In this regard, Flexi Cap funds can take exposure across market caps and sectors and thereby allow fund managers to optimize the portfolio based on the prevailing market conditions, valuations, and future growth prospects. This makes Flexi Cap funds an all-in-one equity solution, suitable for all market conditions and for a wide variety of investors.”

Table 1: Details of Baroda BNP Paribas Flexicap Fund

Type An open-ended dynamic equity scheme investing across large cap, mid-cap, and small-cap companies Category Flexi Cap Fund
Investment Objective The Scheme seeks to generate long-term capital appreciation by investing in a dynamic mix of equity and equity-related instruments across market capitalizations.
However, there can be no assurance that the investment objectives of the Scheme will be realized. The Scheme does not guarantee/indicate any returns.
Min. Investment Rs 5,000/- and in multiples of Re 1 thereafter. Additional Purchase Rs 1,000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
SIP/SWP/STP Available
  • Direct
  • Regular
  • Growth
  • Income Distribution Cum Capital Withdrawal (IDCW)
Entry Load Not Applicable Exit Load
  • If units of the Scheme are redeemed or switched out up to 10% of the units (the limit) within 12 months from the date of allotment – Nil.
  • If units of the scheme are redeemed or switched out in excess of the limit within 12 months from the date of allotment – 1% of the applicable NAV.
  • If units of the scheme are redeemed or switched out after 12 months from the date of allotment – Nil.
Fund Manager – Mr Sanjay Chawla
– Mr Sandeep Jain (for overseas investments)
Benchmark Index Nifty 500 Total Return Index
Issue Opens: July 25, 2022 Issue Closes: August 08, 2022

(Source: Scheme Information Document)  

The investment strategy for Baroda BNP Paribas Flexicap Fund will be as follows:

Baroda BNP Paribas Flexicap Fund will invest in equity and equity-linked instruments across market capitalization viz. Large-cap, mid-cap and small companies with no limits on market cap allocations. The fund aims to invest across sectors, in companies that have strong business and economic fundamentals, reputed management, and good long-term growth prospects.

The Scheme will focus on creating an appropriately diversified portfolio of companies with a long-term perspective. The Scheme will follow a top-down approach to select sectors and follow a bottom-up approach to pick stocks across the sectors based on the quality of the business model and quality of management. Stock-specific risk will be minimized by investing only in those companies that have been thoroughly analysed by the Investment team at the AMC.

The following are the broad parameters/factors that shall be considered while building the portfolio of companies.

  • business and economic fundamentals driven by in-depth research
  • The reputation of the management and track record
  • long-term growth prospects
  • The financial strength of the companies, as indicated by well recognised financial parameters employing strong stock selection valuation parameters

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

Table 2: Asset Allocation for Baroda BNP Paribas Flexicap Fund

Instruments Indicative Allocation (% of assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity & Equity related instruments ^ 65 100 Very High
Debt* & Money Market instruments and/or units of Mutual Fund 0 35 Low to Medium
Units issued by REITs and InvITs 0 10 Very High

*Debt instruments may include securitised debt up to 20% of the net assets.
^The Scheme may invest up to 50% of equity assets in equity derivatives instruments as permitted under the SEBI (Mutual Funds) Regulations, 1996 from time to time.

(Source: Scheme Information Document)  

The scheme shall invest part of its portfolio in debt and money market instruments subject to permissible limits laid under SEBI (MF) Regulations and will be guided by credit quality, liquidity, and interest rates outlook. The scheme shall also have exposure to derivative instruments for hedging, portfolio balancing and optimising returns.

Who will manage Baroda BNP Paribas Flexicap Fund?

Mr Sanjay Chawla and Mr Sandeep Jain for overseas investments will be the designated fund managers for this scheme.

Mr Sanjay Chawla has completed his MMS degree from BITS Pilani and has over 30 years of experience in fund management, equity research and Management Consultancy. Prior to joining Baroda BNP Paribas Mutual fund, he was working with Birla SunLife AMC as Sr. Fund Manager-Equity, SBI Capital Markets as Head of Research and in various capacities in the equity research space in Motilal Oswal Securities, IDBI Capital Markets, SMIFS Securities, IIT Invest Trust & Lloyds Securities.

At Baroda BNP Paribas Mutual Fund, Mr Chawla currently manages Baroda BNP Paribas Large and Mid- Cap Fund, Baroda BNP Paribas Multi Cap Fund, Baroda BNP Paribas ELSS Fund, Baroda BNP Paribas Focused Fund and Baroda BNP Paribas Balanced Advantage Fund.

Mr Sandeep Jain will be managing the overseas investments for this scheme. He is a Chartered Accountant, ICAI and has completed his B. Com (Hons) from Kolkata University and has an overall experience of 14 years in research. His last stint was with Aditya Birla Sunlife Insurance Limited as Fund Manager and Research Analyst. Prior to that, he has worked with various companies viz., Sundaram Asset Management Company Limited, Emkay Global Financial Service Ltd., and IDBI Capital Markets & Securities Limited.

At Baroda BNP Paribas Mutual Fund, Mr Jain currently manages Baroda BNP Paribas Multi Cap Fund and Baroda BNP Paribas Banking and Financial Services Fund.

Fund Outlook – Baroda BNP Paribas Flexicap Fund

Baroda BNP Paribas Flexicap Fund is an open-ended dynamic equity scheme investing across large cap, mid cap & small cap stocks to offer its investors diversification benefits by investing in one equity fund that allocates its assets across market segments. There is no predetermined allocation towards any of the market capitalizations or sectors or any of the investment styles.

The flexibility to identify investment opportunities across sectors and market capitalisations could assist the scheme to capitalise on its growth potential as well as managing risks through diversification. The fund managers have the flexibility to position the portfolio dynamically based on market conditions, valuations, and future growth possibilities, among other factors.

All market segments do not perform in the same direction, within each market capitalisation group, the performance and prospects of enterprises vary considerably. Predictability of returns or even the direction of the market cap segments is difficult. Being an actively managed Flexicap fund, the scheme allows fund managers the flexibility to dynamically take positions across large/ mid or small cap. Given the dynamic nature of the fund, it will adapt and thrive in various market phases. Large caps tend to reduce market volatility and provide stability to the portfolio, whereas mid and small caps may offer higher growth potential.

However, do note that even though the scheme invests in opportunities across the market-cap spectrum and reduces non-systematic risk with proper diversification, it is not immune to market risks. If the fund manager increases the exposure to mid and small-cap stocks, which are highly risky in nature, the portfolio may witness higher volatility. The fund manager’s ability to construct the Flexi Cap portfolio remains to be seen.

Additionally, the persistent repercussions of the Russia-Ukraine conflict, spiralling inflation and the recent announcement made by RBI in its MPC meeting to hike policy rates again by 50 basis points to curb demand and control inflation are all elements that represent a significant risk to the economic growth and are the root cause of the prevailing high market volatility. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. These factors among others may affect the scheme’s performance, and the portfolio may face higher volatility in the near term.

Thus, this scheme is suitable only for high-risk investors who can stomach the market volatility with a long investment horizon of at least 5-7 years. Ensure that your investment objectives align with the fund.

This article first appeared on PersonalFN here

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