{"id":610,"date":"2019-07-12T12:01:29","date_gmt":"2019-07-12T12:01:29","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=610"},"modified":"2019-07-13T05:30:31","modified_gmt":"2019-07-13T05:30:31","slug":"should-investors-deploy-their-savings-in-baroda-equity-savings-fund-to-balance-risk-returns","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/07\/12\/should-investors-deploy-their-savings-in-baroda-equity-savings-fund-to-balance-risk-returns\/","title":{"rendered":"Should Investors Deploy Their Savings In Baroda Equity Savings Fund To Balance Risk-Returns?"},"content":{"rendered":"\n

Baroda Pioneer Mutual Fund<\/a> launches Baroda Equity Savings Fund (BESF), an open-ended scheme from a sub-category of the hybrid fund.<\/p>\n\n\n\n

Equity Savings Fund<\/a> as categorised by the market regulator, SEBI, is a Hybrid Fund. Meaning, it invests in equity and equity related instruments (including derivatives), debt & money market instruments, and would explore arbitrage opportunities. If there are no arbitrage opportunities available, the scheme has the flexibility to invest in debt. <\/p>\n\n\n\n

The gross equity exposure of these funds is\nat a minimum of 65% & its debt exposure is restricted to 35%. The equity\nand the derivative exposure are considered as ‘equity’ allocation and hence,\nthese funds are treated as equity funds. The unhedged equity exposure typically\nranges from 15% – 40%, and the rest of the portfolio is hedged to gain from arbitrage\nopportunities. Arbitrage profits on the hedged positions enable such funds to\ngenerate additional returns to investors.<\/p>\n\n\n\n

Off-late, the equity markets have been extremely volatile this year, while the bond markets are not safe either. The stock picking has become difficult while constructing a pure equity fund<\/a> or even while choosing debt instruments for a pure debt fund, credit quality<\/a> has become a major concern.    <\/p>\n\n\n\n

This, in fact, has irked investors for a\ncouple of years now. So mutual fund houses believe that Equity savings fund can\nbe a saviour as it offers the benefit of both the asset classes. Hence, Baroda Mutual\nFund joined its peers to launch Baroda\nEquity Savings Fund. <\/p>\n\n\n\n

The fund house explains that the main purpose of this fund is to balance<\/a> the risk-return characteristics of different asset classes by investing in equity, debt and derivatives. Usage of derivatives reduces equity exposure and consequently protects investors from the volatility of returns. <\/p>\n\n\n\n

As per the mandate, BESF will invest up to\n90% of its assets in equity and equity related instruments (including hedged\nand unhedged positions) in normal circumstances and the remaining in debt &\nmoney market instruments and units issued by REITs & InvITs. <\/p>\n\n\n\n

However, from a risk standpoint<\/a>, given that BESF portfolio will typically have a dominant exposure to equity and equity related instruments\u2014including unhedged equities. So, the scheme is suitable only if you have a moderate-to-high-risk appetite and have an investment time horizon of at least 3-5 years. <\/p>\n\n\n\n

Image 1: Risk-return\nmatrix of Funds<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

Illustration\npurpose only.
(Source: Baroda Equity Savings Fund NFO- presentation)<\/p>\n\n\n\n

Do note that from a tax\nimplication<\/a> standpoint, an equity savings fund is classified as an equity-oriented mutual fund scheme<\/a>. Hence, if redeemed\nwithin a holding period of one-year, Short Term Capital Gain Tax (STCG)\ntax @ 15% will apply. And if redeemed after a period of 1 year, the Long-Term\nCapital Gains (LTCG) in excess of Rs 1 lakh will be taxed @10%. <\/p>\n\n\n\n

[Read<\/strong>: Which Are The Best ELSSs (Tax Saving Funds) For 2019?<\/a>]<\/p>\n\n\n\n

Table 1: Details of Baroda Equity Savings Fund<\/em><\/strong><\/p>\n\n\n\n

\n Type<\/strong>\n <\/td>An open-ended scheme investing in equity, arbitrage and debt instruments<\/td>\n Category<\/strong>\n <\/td>\n Hybrid Scheme – Equity Savings\n <\/td><\/tr>
\n Investment Objective<\/strong>\n <\/td>\n To generate capital appreciation and income by using arbitrage opportunities, investment in equity\/equity related instruments and debt\/ money market instruments.

\n However, there is no assurance or guarantee that the investment objective of the Scheme will be realized.\n <\/td><\/tr>
\n Min. Investment<\/strong>\n <\/td>\n Rs 5,000 and in multiples of Re 1 thereafter\n <\/td>\n Face Value<\/strong>\n <\/td>\n Rs 10 per unit\n <\/td><\/tr>
\n Plans <\/strong>\n <\/td>\n \u2022 Direct
\n\t\u2022 Regular\n \n <\/td>		\n Options<\/strong>\n <\/td>\n \u2022 Growth*
\n \u2022 Dividend\n\t
    \n\t
  • Pay-out<\/li>\n\t
  • Reinvestment*<\/li><\/ul>\n\t\n\t*Default option\n <\/td><\/tr>
\n Entry Load<\/strong>\n <\/td>\n Not Applicable\n <\/td>\n Exit Load<\/strong>\n <\/td>\n\t
    \n
  • 1%, if redeemed within one year from the date of allotment of Units.<\/li>\n
  • Nil, if redeemed after one year from the date of allotment of Units.<\/li>\n\n <\/ul>\n <\/td><\/tr>
\n Fund Manager<\/strong>\n <\/td>\n Mr Sanjay Chawla (Equity), Mr Dipak Acharya (Equity) and Mr Alok Sahoo (Fixed Income)\n <\/td>\n Benchmark Index<\/strong>\n <\/td>\n 40% NSE 50 Arbitrage index, 35% NIFTY Short Duration Debt index and 25% NSE100 index\n <\/td><\/tr>
\n Issue Opens<\/strong>\n <\/td>\n July 04, 2019\n <\/td>\n Issue Closes:<\/strong>\n <\/td>\n July 16, 2019\n <\/td><\/tr><\/tbody><\/table><\/center>\n\n\n\n

(Source: Scheme Information Document<\/a>)<\/p>\n\n\n\n

How will Baroda Equity Savings Fund allocate its assets?<\/strong><\/p>\n\n\n\n

Under normal circumstances, the broad\ninvestment pattern will be as under:<\/p>\n\n\n\n

Table 2: BESF’s\nAsset Allocation<\/em><\/strong><\/p>\n\n\n\n\n\t\n\t\n\t
\n Instruments<\/strong>\n <\/td>\n Indicative\n Allocation (% of Total Assets)<\/strong>\n <\/td>\n Risk\n Profile<\/strong>\n <\/td><\/tr>
\n Minimum<\/strong>\n <\/td>\n Maximum<\/strong>\n <\/td>\n High\/\n Medium\/ Low<\/strong>\n <\/td><\/tr>
\n Indian Equities and Equity Related Instruments<\/strong>\n <\/td>65<\/strong><\/td>\n 90<\/strong><\/td>\n High\n <\/td><\/tr>
\n i.\tEquity and equity related securities (unhedged); and\n <\/td>\n 0<\/td>\n 50<\/td>High<\/td><\/tr>\n\t
\n ii.\tEquities, equity related securities and derivatives including index futures, stock futures, index options, & stock options, etc. as part of hedged \/ arbitrage exposure (hedged)\n <\/td>15<\/td>90<\/td>Medium to High<\/td>\n\t<\/tr>\n\t\n\t
\n Debt and money market instruments*<\/strong>\n <\/td>10<\/strong><\/td>35<\/strong><\/td>Low to Medium<\/strong><\/td>\n\t<\/tr>\n\t
Units issued by REITs & InvITs<\/strong><\/td>0<\/strong><\/td>10<\/strong><\/td>High<\/strong><\/td>\n\t<\/tr>\n\t<\/tbody><\/table>\n\n\n\n

*<\/strong>Investment in securitized debt will\nnot exceed 10% of the net assets of the Scheme.

The Scheme will not invest in foreign securitized debt.

\nGross equity exposure will be maintained between 65% to 90% and the net long equity exposure will be between 0% to 50%. The Scheme may take derivatives positions up to 65% of the net assets of the Scheme, based on the opportunities available, subject to the guidelines issued by SEBI from time to time, and in line with the overall investment objective of the Scheme. These may be taken to hedge or rebalance the portfolio, or to undertake any other strategy as may be permitted under the Regulations from time to time.

\nThe Scheme may engage in stock lending to the extent of 20% of the net assets of the Scheme \n<\/p>\n\n\n\n

(Source: Scheme Information Document<\/a>)<\/p>\n\n\n\n

What will be the Investment Strategy?<\/strong><\/p>\n\n\n\n

Baroda Equity Savings Fund has a dual objective of generating capital appreciation by investing in equity and equity related securities as well as generating income by investing in debt and money market securities while attempting to manage risk from the market through active asset allocation. In order to achieve this process, the Scheme will follow a top-down and bottom-up strategy.<\/a><\/p>\n\n\n\n

The AMC has built a proprietary model for\nasset allocation based on the valuations and fundamentals of the companies. The\nasset allocation between equity and debt will be determined by the model and\nthe top-down process will help in deciding the sector allocation while the\nbottom up process would lead to the construction of the portfolio using\nspecific securities.<\/p>\n\n\n\n

Image 2: Proprietary\nModel Diagram<\/em><\/strong><\/p>\n\n\n\n

(Source: Baroda Equity Saving Fund- One pager<\/a> )<\/p>\n\n\n

\"\"<\/figure><\/div>\n\n\n

The model will be revisited if needed, and\nadjustments made if needed, to ensure that the outcomes remain relevant to the\nmarket environment. The model would be run on a monthly basis to decide the\nasset allocation. Generally, once the allocation is fixed, it will not be\nchanged till the next month except in case of extraordinary situations where\nextreme volatility in the markets would force a change in asset allocation.<\/p>\n\n\n\n

Though the Scheme would ensure adherence to\nthe overall investment exposure limits defined by SEBI for the scheme category,\nit retains the flexibility to deviate from the equity and debt exposures as\nprovided by the proprietary model, depending on the market conditions, market\nopportunities, applicable regulations and political and economic factors.<\/p>\n\n\n\n

Equity\nallocation based on the model<\/strong><\/p>\n\n\n\n

The gross equity exposure will be\nmaintained in the range of 65% to 90% while the net equity exposure will be\nmaintained between 0% to 50%. The difference between gross and net variation\nwould generally be invested in arbitrage or in arbitrage equity mutual funds.\nThe model would follow the matrix approach for asset allocation based on\ndifferent parameters.<\/p>\n\n\n\n

Fixed\nIncome allocation based on the model<\/strong><\/p>\n\n\n\n

The exposure to Debt & Money Market\nInstruments including cash and cash equivalents will be maintained in the range\nof 10% to 35%. The model would follow the matrix approach for asset allocation\nbased on different parameters.<\/p>\n\n\n\n

Once the asset allocation has been decided\nbased on the model, the portfolio would be constructed based ontop-down as well\nas bottom-up approach using our core principle of investing, GARP (Growth at a\nReasonable Price). The Scheme retains the flexibility to deviate from the asset\nallocation model, depending on the market conditions, market opportunities,\napplicable regulations and political and economic factors.<\/p>\n\n\n\n

Who\nwill manage Baroda Equity Savings Fund?<\/strong><\/p>\n\n\n\n

The Baroda Dynamic Equity Fund will be\nmanaged by Mr Sanjay Chawla (Equity), Mr Deepak Acharya (equity) and Mr Alok\nSahoo (Fixed Income).<\/p>\n\n\n\n

Mr\nSanjay Chawla<\/strong> is the Chief Investment Officer of\nEquities at Baroda Pioneer Asset Management Company Limited. He holds a degree\nin Master of Management Studies (MMS) from BITS, Pilani. Mr Sanjay Chawla has\nover 29 years of experience in fund management, equity research and management\nconsultancy. Prior to joining the AMC, he has worked with Birla Sun Life AMC as\nSr Fund Manager-Equity, managing various schemes with different strategies. Mr\nChawla has also worked as Head of Research with SBI Capital Markets and in\nvarious capacities in the equity research space in Motilal Oswal Securities,\nIDBI Capital Markets, SMIFS Securities, IIT Invest Trust & Lloyds\nSecurities.<\/p>\n\n\n\n

He is the lead fund manager at the AMC, few schemes that he manages include Baroda Pioneer Multi-Cap Fund<\/a>, Baroda Pioneer ELSS\u201996 Fund<\/a>, Baroda Pioneer Hybrid Equity Fund<\/a>, Baroda Pioneer Large cap Fund<\/a> and Baroda Pioneer Mid-cap Fund<\/a>.<\/p>\n\n\n\n

Mr\nDipak Acharya<\/strong> is an M.Com., with the added\nqualifications of AICWA, CAIIB and PGPMS. He has been working in the investment\narea in the asset management industry for over 15 years now.<\/p>\n\n\n\n

He has been with the organization since\nSeptember 2008. He was also the Fund Manager at BoB Mutual Fund from August\n2003. Prior to this, Mr Acharya was with Bank of Baroda, where he worked in the\nTreasury Dept. and Credit Dept for 10 years.<\/p>\n\n\n\n

Currently, some of the schemes which Mr Acharya manages at the fund house include Baroda Pioneer Multi-Cap Fund<\/a> (Earlier known as Baroda Pioneer Growth Fund),  Baroda Pioneer Large cap Fund<\/a>, Baroda Pioneer ELSS\u201996 Fund<\/a>, Baroda Pioneer Hybrid Equity Fund<\/a> (Earlier known as Baroda Pioneer Balance Fund), Baroda Banking & Financial Services Fund<\/a>, Baroda Dynamic Equity Fund<\/a> and Baroda Pioneer Mid-cap Fund<\/a>.<\/p>\n\n\n\n

Mr\nAlok Sahoo<\/strong> is the Head of Fixed Income at Baroda\nPioneer Asset Management Company Limited. He is a management graduate in\nFinance from XIM, Bhubaneswar, with a BE degree from NIT, Rourkela. He has been\nworking in the investment area in asset management for more than 17 years.\nPrior to joining the fund house, he was a fixed income fund manager at UTI\nMutual Fund and at HSBC Mutual Fund. He was also the Fund Manager for the\nEmployee Provident Fund at HSBC Asset Management. He has experience in the\ncredit research of companies as well.<\/p>\n\n\n\n

Currently, Mr Sahoo manages Baroda Pioneer Liquid Fund<\/a>, Baroda Pioneer Treasury Advantage Fund<\/a>, Baroda Pioneer Short Term Bond Fund<\/a>, Baroda Pioneer Dynamic Bond Fund<\/a>, Baroda Pioneer Credit Risk Fund<\/a> and Baroda Pioneer  Short Duration Fund<\/a>.<\/p>\n\n\n\n

The outlook for Baroda Equity Savings\nFund<\/strong><\/p>\n\n\n\n

To achieve the stated objective, the fund\nmanagers of the Baroda Equity Savings Fund will use arbitrage opportunities,\ninvest in equity\/equity related instruments and debt\/ money market instruments\nactively. <\/p>\n\n\n\n

So, the fortune of BESF will be closely\nlinked to how resourcefully the fund managers handle the asset allocation, and\nof course, the underlying instruments it holds in the portfolio, even as\nit follows a mix of a top-down and bottom-up approach to investing backed by\ncertain research parameters of its proprietary model.<\/p>\n\n\n\n

Image 3: Proposed\nasset allocation to deal with downside risks<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

(Source: Baroda Equity Savings Fund NFO- presentation<\/a>)<\/p>\n\n\n\n

How dexterously the fund managers may shift\nthe asset allocation within equities–between unhedged and hedged portion–and\nfrom equities to the debt during defensive consideration, remains to be seen. <\/p>\n\n\n\n

As in the current market conditions where\nsmall-cap and mid-cap companies are hammered, and so have large caps tumbled on account of the Budget announcement of\nsurcharge; it provides an opportunity to do some value buying but\nvaluations aren\u2019t cheap. <\/p>\n\n\n\n

The\nmarkets brace up for the results season, and the corporate earnings need to\nstart justifying the valuations, there are governance issues with a few\ncompanies, and some companies that are debt-free aren’t cheap.<\/p>\n\n\n\n

Global headwinds are also in play such as the geopolitical tensions, so going ahead the equity markets are expected to remain highly volatile. So, for the fund managers constructing the portfolio would not be easy and may inflict very-high-risk. <\/p>\n\n\n\n

As far as\nthe debt markets are concerned, the 10-Year Benchmark Yield in G-Sec slipped\nbelow to 6.6%. It has been dipping since the successive 25 basis point rate cut\nin repo rates.<\/p>\n\n\n\n

Plus, the\nMonetary Policy Committee (MPC) changed the stance of monetary policy from\nneutral to accommodative in the last bi-monthly monetary policy statement for\n2019-20 (held in June 2019). It was done in order to achieve the medium-term\ntarget for consumer price index (CPI) inflation of 4 per cent inflation and to\nboost the subdued GDP.<\/p>\n\n\n\n

Nevertheless, the mandate of the fund could come as precaution provided the fund managers uses it thoughtfully to construct the investment portfolio<\/a>, both equity (including derivatives) and debt, plus even while exploring arbitrage opportunities.<\/p>\n\n\n\n

[Read<\/strong>: Best Equity Savings Fund For 2019]<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Baroda Pioneer Mutual Fund launches Baroda Equity Savings Fund (BESF), an open-ended scheme from a sub-category of the hybrid fund. Equity Savings Fund as categorised by the market regulator, SEBI, is a Hybrid Fund. Meaning, it invests in equity and equity related instruments (including derivatives), debt & money market instruments, and would explore arbitrage opportunities.…<\/p>\n","protected":false},"author":4,"featured_media":616,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/610"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=610"}],"version-history":[{"count":7,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/610\/revisions"}],"predecessor-version":[{"id":622,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/610\/revisions\/622"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/616"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=610"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=610"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=610"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}