Aditya Birla Sun Life Frontline Equity, one of the popular funds of Aditya Birla AMC, has been classified as a ‘large cap’ fund. This means that the fund will have to invest at least 80% of its assets in the top 100 listed companies in India by market capitalisation. The fund’s current mandate requires it to invest 75-100% of its money in equities without specifying what size of companies it must invest in. The fund will be allowed to invest the balance 0-20% of its assets in smaller companies or debt.
The benchmark of the scheme will be moved from the S&P BSE 200 to Nifty 50. This shifts the orientation of the fund strongly towards large companies. The fund is required to target the same sectoral weights as its benchmark, with some leeway. It is free to choose different stocks from its benchmark, within a particular sector. A close affinity to the benchmark is thus currently written into the fund’s investment strategy and this will continue. This makes the choice of benchmark an important one.
The fund has delivered a stellar performance. Its five-year CAGR is 16.82% and its 10-year CAGR is 12.36%. Its manager, Mahesh Patil, has been in charge since 2005.
The fund already has a heavily large cap titled portfolio and hence the mandate changes may not force large modifications in the fund’s portfolio. A 77% of the portfolio is in ‘giant’ stocks and 16.5% is in large-cap stocks.
The changes will go into effect on 4th June 2018. Investors who do not agree with them can exit till 1st June 2018 without paying exit load. However, they may be liable to pay either short-term capital gains tax of 15% or long-term capital gains tax of 10% on their gains depending on whether they have held the fund for one year. Investors holding the fund for longer than a year, who bought into it before 31st Jan 2018 will have all gains made till that date, exempted. All investors will also get a tax exemption up to Rs 1 lakh for long-term capital gains.