Mutual Funds
Axis Dynamic Balanced Fund: Using hedging strategies could be risky

The new scheme from Axis Mutual Fund will use hedging strategies to ‘manage’ risk

Axis Mutual Fund plans to launch a new scheme—Axis Dynamic Balanced Fund. This scheme will follow a new approach to dynamic investing. The new scheme will maintain its allocation to cash equity within the range of 65%-100% of the portfolio (similar to other balanced schemes). But, around 0%-65% will be invested in equity derivatives as a hedging strategy. Therefore, the net allocation towards equity will be around 0%-100%. The debt portion of the scheme will vary from 0%-30%. Similar to other balanced schemes, this scheme will seek capital appreciation by investing in a portfolio of equity or equity-linked securities while the secondary objective is to generate income through investments in debt and money market instruments. The difference here is that the scheme will ‘manage’ its risk by using hedging strategies.
 

In a recent issue of Moneylife magazine (Issue dated: 21 March 2013), we wrote how dynamic equity schemes try and time the market. These schemes vary their allocation to equity depending on either a proprietary method or on the price to equity ratio (P/E) of the Nifty index. Recently ING Mutual Fund filed an offer document to launch a scheme— ING Forward P/E Ratio Fund—which would vary its allocation based on the forward P/E of the index (Read: ING Forward P/E Ratio Fund: Another dynamic scheme with a new concept).
 

Fund managers try and lure investors with strategies that try and deliver superior returns by trying to predict the movement of the market. Unlike other equity schemes that invest a fixed proportion to equity, in dynamic schemes, the percentage allocated to equity is decided by the fund management. Therefore, if the fund management makes a wrong call, it would negatively impact returns. This scheme from Axis Mutual Fund will use derivative hedging strategies which involve high level of risk. Therefore, investing in this scheme may involve a higher risk compared to other balanced schemes.
 

Another aspect of dynamic schemes that we have covered in the past is that apart from getting the asset allocation right, the fund managers have to pick the right stocks as well. In this new scheme the fund manager would have to decide the right hedging strategy as well.

Axis Mutual Fund has a track record of just of three years in managing equity schemes. This is too short a period to comment on the fund management performance of the fund house. This new scheme will be managed by R Sivakumar and Jinesh Gopani, both of whom have an experience of over ten years in the industry.

 

Other details of the scheme:
 

Benchmark
 

50% S&P CNX Nifty + 50% CRISIL Composite Bond Fund Index
 

Minimum Application Amount
 

Rs5,000 and in multiples of Re1 thereafter
 

Minimum Additional Purchase Amount
 

Rs100 and in multiples of Re1 thereafter
 

Exit Load:
 

3% if redeemed/switched out up to 6 months from the date of allotment
 

2% if redeemed/switched out after 6 months & up to 12 months from the date of allotment
 

1% if redeemed/switched out after 12 months & up to 24 months from the date of allotment.

User

COMMENTS

Ramesh Poapt

5 years ago

If the benchmark is 50%CNX Nifty,then will it be a 'eqty oriented fund'? Axis schemes performance so far is ok, Tax plan is good performer. Triple Adv. and Midcap has performed satisfactorily.Butit will be very challenging to manage the new scheme for Axis.

Does AMFI’s advertisement on mutual funds pass the test of ethics?

Investors cannot start with an assumption that every mutual fund scheme that they intend to invest in can beat inflation. Portraying mutual fund as a product capable of beating inflation to gullible investors is unfair



Have you seen the advertisment campaign that Association of Mutual Funds of India (AMFI) is running these days to promote mutual funds? If not, it is time to watch it now. AMFI is promoting mutual funds as, “Savings ka naya tareeka” and “Inflation ka injection”.  The idea behind the advertisement is to pitch mutual funds as a savings product to first time investors. The main protagonist in the advertisement says that, “Mutual fund ko injection bhee kah sakte hain, inflation ka injection. Zara sa chubhega, lekin salo tak mahgaee ki bimari se ladgea” (“Mutual fund can also be termed as injection against inflation. It will fight inflation for years”). It is important to note that this advertisement is being promoted by an association which claims that it is meant to serve some of the objectives which are as follows:
 

  • To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry 
     
  • To recommend and promote best business practices and code of conduct to be followed by members, and others engaged in the activities of mutual fund and asset management including agencies connected to, or involved in, the field of capital markets and financial services.
     
  • To disseminate information on the mutual fund industry and to undertake studies and research directly and/ or in association with other bodies
     

Now let us analyse to what extent AMFI has been able to achieve these objectives. The AMFI website states that one of the objectives with which it is functioning is to disseminate information on the mutual fund industry. If that is the objective of AMFI, is it right in promoting mutual fund as a product for savings rather than a product meant for investments? It is expected that a so-called professional body like AMFI must be having understanding of the difference between savings and investments, which is available on a simple google search. One of the simplest segregation between savings and investments can be described as follows, “Saving represents money that is supposed to be immediately liquid and safe.
Investing is for money that is supposed to be generating more money”.  It is obvious that a mutual fund is not a savings product and hence promoting it as, “savings ka naya tareeka” is misleading. It is important to note that one of the key objectives of a mutual fund is to convert savings into investments.
 

For mutual fund industry updates and analysis, please click here.
 

AMFI talks about setting high professional and ethical standards in the mutual fund industry but is AMFI, itself, following those standards? AMFI acting on the behalf of mutual funds should not promote the product which is taking care of the interest of mutual fund houses and seems to be misleading retail investors. The advertisement by AMFI promotes mutual funds as an injection to protect against inflation. Mutual fund is a great investment product, no doubt, but whether it can beat inflation is really debatable. Aren’t there several mutual fund schemes which have given negative returns consistently over the years? Only well managed funds are capable of beating mutual funds. Investors cannot start with an assumption that every mutual fund scheme that they intend to invest in can beat inflation. Portraying mutual fund as a product capable of beating inflation to gullible investors is unfair. If mutual funds can act as an injection against inflation, what is the need to introduce an inflation index bond which is being introduced as a product to fight inflation? AMFI should impress upon the RBI (Reserve Bank of India) and the ministry of finance to drop the idea of introducing inflation index bonds, as we have an effective tool to fight inflation.
 

I wrote on this to AMFI which has remained unanswered till date. However HN Sinor, chief executive at AMFI, told Business Standard, “This is a decision taken at the board level of AMFI, where it has representation from its members. The board’s decision represents the consensus among members. There could be individuals who do not agree but I cannot take 100% consensus of the members. Some people like something and others may have a separate opinion on the same.”  The question of like and dislike does not arise in the case of a product, which is being wrongly pitched. It important to note that mutual fund as a product has not taken off as an investment product in spite of repeated efforts. Any misrepresentation of facts with respect to mutual funds can prove to be fatal for the product.
 

Other stories by Vivek Sharma
 

(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)

User

COMMENTS

hasmukh

5 years ago

The Advertisement of "inflation ke liye injection" is a cruel joke on MF investors, who have got negative returns (as against positive returns, which they expect always). Returns, which compensate inflation remain a far-cry. SEBI should allow MF houses to promise certain returns and if such promises are not met, their AMC s should be made responsible to bear the shortfall.

Vinay Joshi

5 years ago

Dear Mr.Vivek Sharma,

I would have appreciated you putting up 'Mutual Fund' figures & analyses, Sucheta has done it periodically, including scrips.

Further justifying 'the necessity of [proposed] inflation bonds', it was pertinent for you to floor AMFI.

If you have done your 'homework' CALL AMFI for one-to-one dialogue at ML. Don't only write letters & be dependent on Sucheta & ML. You're an activist!? Self admitted!

You talked about SBI ad, the issue is buried by me.

As a finance functionary - 'you are working' in the 'finance' sector & if you have an authoritative view[s], ML is the first to enhance such a dialogue.

Your only contention is 'Ads'. You don't go beyond that! No exemplification.

Are you aware that more than 1.5-2 trillion of rupees are lost by investors in insurance sector, in last five years? "MIS-SELLING"! Ads contribute?

Are you aware that in last five years the big ten insurance co's have lost premia [persistency ratio] in five years?

Starting in 07, 70-85%, [92% ICICI Pru]. In '12 it has come down to 30-45%, certain even higher at 50%. [AVIVA]

Further the co's use reducing balance method - stating 'industry guidelines'.
BUT, what about regulator giving 'persistency' as measured in premia?

Is it not serious an issue.

Have you ever analysed PAT / Lapsed Profit? Atleast last two fiscals?

Who gained?

I was the first to put in the forum about RGESS misselling.

No person, with any sense of financial acumen will undertake to lock his funds for three years in sensex/cnx scrips.

There steps in 'mutual funds', offering commission 7.5%! TO WHOM?

THE GULLIBLE'S - YOU CAN CATCH THEM BY FISHING NET,- are netted by, mutual fund houses, including investors willing to invest 100-500K. THIS IS A SCAM!

Well Mr.Vivek,i appreciate your concerns, follow the 'right path' for redressal of grievances, if any.

Well as of now, i'm not getting you on 'fund' analyses or Philip Kotlers' fifth 'P'.

Regards,





Vinay Joshi

5 years ago

Mr. Vivek Sharma,

It seems you have no answer to my post. If any you've would had posted it?

I understand that you're not an 'armchair' an activists, 'LIKE ME' [as professed by you, you only]- so WHAT about SBI ad v/s ASCI?

As an activist please let the forum know in which manner you'll get justice to the affected victims of SBI ad.

I had stopped short of telling you that 'nothing in the ad can be misleading'.

C'mon now what? Do justice to the task you undertake & as you 'PROFESS TO BE AS AN ACTIVIST' see 'compensation of the said victims'!? If you can, JUST ANSWER THIS POST? You never can?

I had advised you the path for justice!

By depending, rather thinking, Sucheta is tackling, you were one up!Sad!

YOU WRITE TO AMFI, state 'UNANSWERED'- WHAT ABOUT MY POST TO YOU? 'Unanswered'!

Mr. Vivek Sharma, with due respect to you, please let me know about SBI ad.

Further, with your financial wizardry & acumen, KINDLY LET US KNOW, 'the savings instruments for cumulative growth', to harness 'inflationary' trend AND IT GIVES A BETTER RETURN'. Unaffected by inflation!

C'mon Mr.Vivek Sharma & i'll be pleased 'IF YOU' invite me to your next schedule lecture - where 'Q&A', is the norm. [not ML!?]

Regards,

Madhusudan Thakkar

5 years ago

Mr Vivek Sharma,Please tell me which is the better investment option for common man to beat Inflation.....This is one of the best campaign on creating awareness of mutual funds in recent times.......Full marks to AMFI...for a change

Vinay Joshi

5 years ago

Mr.Vivek Sharma,

First let me know about what you've done about ASCI on SBI tax saving?

Regards,

REPLY

Vinay Joshi

In Reply to Vinay Joshi 5 years ago

Mr. Vivek Sharma,

It seems you have no answer to my post. If any you've would had posted it?

I understand that you're not an 'armchair' an activists, 'LIKE ME' [as professed by you, you only]- so WHAT about SBI ad v/s ASCI?

As an activist please let the forum know in which manner you'll get justice to the affected victims of SBI ad.

I had stopped short of telling you that 'nothing in the ad can be misleading'.

C'mon now what? Do justice to the task you undertake & as you 'PROFESS TO BE AS AN ACTIVIST' see 'compensation of the said victims'!? If you can, JUST ANSWER THIS POST? You never can?

I had advised you the path for justice!

By depending, rather thinking, Sucheta is tackling, you were one up!Sad!

YOU WRITE TO AMFI, state 'UNANSWERED'- WHAT ABOUT MY POST TO YOU? 'Unanswered'!

Mr. Vivek Sharma, with due respect to you, please let me know about SBI ad.

Further, with your financial wizardry & acumen, KINDLY LET US KNOW, 'the savings instruments for cumulative growth', to harness 'inflationary' trend AND IT GIVES A BETTER RETURN'. Unaffected by inflation!

C'mon Mr.Vivek Sharma & i'll be pleased 'IF YOU' invite me to your next schedule lecture - where 'Q&A', is the norm. [not ML!?]

Regards,

Vaibhav Dhoka

5 years ago

Many mutual funds scheme has given negative returns some have nearly wiped off PRINCIPAL amount.Actually AMFI only speaks from AMC's point and not investors,For Example SBIMF Infrastructure is quoted around Rs 8 NAV at present.The NFO opened in 2007. AMFI should direct all AMC to give details with positive and negative returns.

Suiketu Shah

5 years ago

Excellent,excellent article Mr Sharma on Mutual Fund industry which is rightly rapidly dying(due to mass mis-selling) and just about trying to survive with an oxygen mask by false ads.

Suketu

Nilesh KAMERKAR

5 years ago

You seem to be confused Mr. Sharma.

Investing is all about foregoing consumption now so that you have the ability to consume more at a later date.

By your own admission, you say "mutual fund is a great investment product". – Given your superior understanding & 17 years of experience, will you call an investment ‘Great’ if it is incapable of beating inflation?

Thus there is nothing misleading about Mutual Funds being Inflation ka Injection.

Equity mutual funds face outflows for the 9th consecutive month in Feb

Though investments in tax-saving schemes increased over the previous month, sales of other schemes declined leading to a net outflow of Rs163 crore in February

Equity mutual schemes have not witnessed a single month of inflow over the last nine months. The months of December 2012 and January 2013 saw a jump in equity sales. However, sales in February 2013 could not keep up with the previous two months. Equity MF sales in December and January amounted to Rs4,343 crore and Rs5,599 crore, respectively. Sales in February dipped to Rs3,713 crore despite the fact the equity linked savings schemes (ELSSs) contributed to 9% of the sales; the highest since March last year. Even redemptions, which amounted to Rs3,876 crore, were the lowest in the last eight months. But still, due to the poor sales, equity schemes witnessed another month of outflow.

 

There were no new fund offers that closed in the previous month. A reason for the dip in sales could be that distributors are more focussed on pushing Rajiv Gandhi Equity Saving Schemes (RGESSs) to their clients due to the high commission involved (Read: High value applications perverting RGESS, while SEBI remains mum) As most of these NFOs would be closing in March, it would be interesting to see the quantum of inflows brought in by these schemes.

 

Though redemptions from equity schemes were lower compared to the previous months, the number of folios declined by nearly 2.30 lakh to 3.34 crore in February, from 3.36 crore folios in January. We have been constantly highlighting the decline in folios in our earlier articles as well. We had mentioned that as on 31 March 2009 the number of folios stood at 4.17 crore, but since then there has been a constant reduction in folios. As of now the number of folios is down by nearly 20% since 2009.

 

Equity assets under management (AUM) fell by over 7% from Rs1.90 lakh crore in January to Rs1.76 lakh crore in February. The S&P BSE Sensex declined by 5% over the period.

User

COMMENTS

Ramesh Poapt

5 years ago

Are the Indian investors are smarter than FIIs this time? or they will enter at higher level and burn the fingers as happened in the past?

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