Invesco Mutual Fund, a fund management company headquartered in Atlanta, Georgia (USA), first entered India in 2012 by acquiring a stake in Religare AMC. The joint venture was called Religare Invesco. In 2016, it acquired Religare’s remaining stake in the joint venture and the fund house was renamed ‘Invesco Mutual Fund.’
The AMC is known for its Invesco Contra Fund and its Growth, Dynamic Equity and Mid-and-Small Cap Funds. Out of these, the last three have seen notable changes as part of the AMC’s reclassification exercise to comply with the new SEBI category norms. These changes went into effect on 27th April 2018. Investors were given a period of one month prior to this date, to exit without paying exit load. Those wishing to leave now will have to pay exit load and potentially, capital gains tax.
Invesco India Dynamic Equity Fund (AUM: Rs 1,008 crore)
This fund was previously allowed to allocate 70-100% of its assets to equities and 0-30% to debt, making its name a bit of a misnomer. It wasn’t given a lot of room to be ‘dynamic.’ On the other hand, the asset allocation limits guaranteed the fund’s ‘equity status’ to investors for tax purposes.
These limits have now been expanded to 0-100% in equity or debt. The old investment strategy of the fund referred to a ‘focused strategy’ with 15-30 stocks and 5-10 sectors. This has been removed and the new strategy only refers to dynamic asset allocation based on prevailing market conditions. The new asset allocation will be derived from a proprietary ‘asset allocation model’ which combines Equity Risk Premium with Price-to-Earning Ratio to arrive at a ‘precise allocation of equity.’
This fund also has a strong five-year return of 15.58% and a one year return of 13.85%. Despite being a ‘dynamic equity fund’ it will continue to be benchmarked against the S&P BSE 100. The fund currently has a 95% equity allocation, presumably indicating that the fund does not see significant signs of overvaluation in the market.
Invesco India Mid-and-Small Cap Fund (AUM: Rs 555 crore)
This fund has been renamed as Invesco India Multicap Fund. It was previously required to invest 65-95% of its assets in mid-cap stocks, 5% – 35% in small-cap stocks and 0 – 30% in other types of stocks. Midcaps were defined as companies lying within the market cap of the largest and smallest stock in the Nifty Freefloat Midcap 100 and small caps were defined as companies lying within the market cap of the smallest and largest stock in the S&P BSE Small Cap Index.
These market caps have now been removed with its classification as a ‘multi-cap fund.’ There is only a requirement to invest 65-100% in equities and the rest in debt. The benchmark has been changed from the Nifty Freefloat Midcap 100 to the S&P BSE Allcap. The fund has five-year returns of 24.33% and one-year returns of 13.02%. These returns are respectable but they look particularly good against the revised benchmark of the fund. Investors should be cautious while comparing these returns with the new benchmark for the past 5-10 years because the fund was not run as a multi-cap fund in those years.
Invesco India Growth Fund (AUM: Rs 484 crore)
This erstwhile large-cap fund is now called Invesco Growth Opportunities Fund and has been classified as a ‘large and midcap’ fund. This means that it can invest 35-65% of its assets in large caps and mid-caps respectively. Large caps are defined by SEBI as the 100 largest listed companies by market capitalisation. Midcaps are defined by SEBI as the 101st to 250th largest companies by market capitalisation. The balance 0-35% of its assets can be invested in other companies or debt. It was earlier only required to invest 65-100% of its assets in equities without any market cap restrictions. However, its orientation was towards large-cap stocks.
The fund has performed well in the past with a 19.25% CAGR over the past five years and a staggering 20.34% in the past year. The top 250 companies in India account for about 84% of the market cap of all listed companies, giving this fund a wide stomping ground. There is little reason to believe that the classification assigned will be detrimental to investors