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Finally, Mirae Mutual Fund enters this Rs 1.7 trillion MF category. Should you invest in its NFO?

The fund will use a combination of price-to-book and price-to-earnings multiples to assess market valuations

July 21, 2022 / 06:09 PM IST

Mirae Mutual Fund (Mirae MF) has launched a balanced advantage fund (BAF), which is the largest category in the hybrid space managing investor assets worth Rs 1.7 trillion.

The new fund offer (NFO) will open for subscription on July 21.

The scheme

Mirae Asset Balanced Advantage Fund (BAF) will invest 30-80 percent in equities and 20-35 percent in debt. If the net equity allocation falls below 65 percent (the minimum requirement for fund to be treated as equity for taxation), the difference will be met by arbitrage allocation.

For a fund house that is 14 years old and an excellent track record in equities over the years, it has taken an unusually long time to warm up to arguably the hottest mutual fund category in town. Swarup Mohanty, chief executive officer, Mirae MF, says the category has now evolved with lot more BAFs in the market and there is more awareness among investors.

Close

The fund will dynamically move between equity and debt, depending upon how equity valuations change. It will use both price-to-book and price-to-earnings multiple to assess market valuations, with higher weightage (75 percent) on price-to-book. The model will use Nifty 50 benchmark index to assess market valuations.

In the current market environment, the Mirae BAF's investment model suggests a 60 percent allocation in equities.

What works

Mirae MF’s BAF will be conservative in its stock and bond selection, keeping in mind the risk-profile of the investors.

“We believe investors who come to hybrid category are not complete equity investors. Hence, all our hybrids are large cap-oriented on the equity side,” points out Mohanty.

Mahendra Jajoo, chief investment officer-fixed income, Mirae MF, points out that the fund will invest in debt papers with highest credit rating (AAA-rated securities), with marginal allocation to AA and AA-plus credit papers. The investments will be in mix of government securities and corporate bonds, depending on the fund house’s view.

If the fund house has negative view on interest rates, the fund will invest in debt papers with two-three year maturity. If the fund house has positive view on interest rates, it will invest in debt papers with three-five year maturity.

The debt portfolio will be managed with a buy and hold strategy, which means the debt portfolio will be shuffled only if the interest rates are expected to change trends, either moving up or moving down.

What doesn’t

BAFs often get pushed as a one-stop solution for all of investors’ asset allocation needs, as these straddle between equity and debt. However, distributors say that investors should not consider BAF as a one-stop solution.

“BAFs should be considered by investors as part of their equity portfolio as these tend to have significant exposure to equities. Investors should not think of BAFs as a replacement for a pure-debt fund,” says Rushabh Desai, founder, Rupee with Rushabh Investment Services.

“We would like to wait and watch to see how Mirae MF executes its BAF strategy. Mirae MF has a good track-record on the equity side and has been consistent with its performance,” says Deepak Chhabria, chief executive officer and director at Axiom Financial Services.

BAFs also come in a variety of shades; it remains to be seen how sharply, Mirae BAF’s equity allocation will swing.

Moneycontrol’s take

With BAFs, it is important how efficiently the investment model picks the expensiveness or cheapness of market valuations and timely shifts between equity and debt.

If the BAF has reduced its equity exposure at the right time, it can protect the downside for investors when markets turn volatile. Given that this category is well-established and there are many existing, some of them with a good track record, there is no need to rush for Mirae BAF anytime soon.

Wait for it to build a track-record with its investment model. The NFO closes on August 3.
Jash Kriplani is a journalist with over ten years of experience. Based in Mumbai. Covering mutual funds, personal finance. His last stint was with Business Standard, where he covered mutual funds and other developments in the financial markets
first published: Jul 21, 2022 08:08 am
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