NFO Review: Sundaram Equity Savings Fund opens for subscriptionSundaram Mutual Fund has launched a new fund offer (NFO) named Sundaram Equity Savings Fund. The scheme has opened for subscription on November 16 and will close on November 30, 2018. The category has 19 funds open for investment as of now, and this is the fourth fund being launched in this year post the Sebi recategorisation exercise.

Equity Savings Funds are a kind of hybrid funds investing typically in three asset classes’ equity, debt and arbitrage. From risk-return perspective, these funds are positioned between conservative hybrid funds & aggressive hybrid funds. The strategy is to derive income from debt portion, capital gains from equity portion and hedging or protection from the arbitrage portion.

The advantage of this product is its capability of providing high exposure to equity (min 65%) with lower risk or volatility. This is a good product to have in one’s portfolio during volatile times owing to its distinctive attribute of providing steady returns.

Let’s take a look at the asset allocation and strategy of Sundaram Equity Savings Fund.

Asset Allocation:

Instrument Type Minimum Maximum
Equity & Equity Related Instruments
Derivatives including Index Futures, StockFutures, Index Options, Stock Options, etc., backed by underlying equity (only arbitrage opportunities)*

Unhedged equity position

65%

 

25%

 

15%

90%

 

75%

 

40%

Fixed Income and money market 10% 35%
Units issued by ReIts/InvIts 0% 10%

The product has a moderately high risk profile and is suitable for investors who already have exposure to equities and are seeking to diversify their portfolio with a differential strategy. As per the fund’s scheme information document (SID), this fund will adopt a blend of top down and bottom up strategies for stock selection. This fund will be making sector and market cap agnostic investments.

The notable point is that, basis the fund manager’s view the fund could take an overweight or underweight stand on a particular sector or market cap. Under normal circumstances, debt portion of the fund will primarily provide liquidity and accrual income. However there is no cap on rating profile or duration that the fund will run.

Fund’s equity portion will be managed by S Krishnakumar and S Bharath and the debt portion will be managed by Dwijendra Srivastava. They are managing several other schemes at Sundaram Mutual fund. The collective experience of fund management team for this product is ~10yrs.

The fund is benchmarked against Nifty Equity Savings Index, which has a 35% exposure to Nifty 50 TRI; 30% exposure to equity arbitrage (long position in Nifty 50 TRI and equivalent short position in Nifty 50 Futures Index); 30% exposure to Nifty Short Duration Debt Index & 5% exposure to NIFTY 1D Rate Index.

Tax Impact

As the fund intends to allocate minimum 65% of its assets in equity (spot & derivative positions together), it will be eligible for Long Term Capital Gains tax of 10% for equities which is held for more than one year. Thus, investors get dual benefits of equity taxation and regular income of fixed income investments in one product.

Key Product Features:

Parameter Description
Scheme Type An open ended scheme investing in equity, arbitrage and debt
Plans & Options Direct Plan:
Growth
Dividend (Pay out, Reinvestment & Sweep)Regular Plan:
Growth
Dividend (Pay out, Reinvestment & Sweep)
Exit Load For redemption within 12 months from the date of allotment – 1%
For redemption on or after 12 months from the date of allotment – Nil
Minimum Application Amount ₹5,000/- and in multiples of ₹1 thereafter per application
SIP Weekly ₹1,000; Monthly ₹250; Quarterly ₹750

This fund is suitable for investors who have moderate to moderately high risk profile & are seeking low volatility product with a high growth potential of equity investments.

Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Author
Priyanka Bharati

Priyanka Bharati is a senior personal finance analyst with RupeeIQ. She can be reached on priyanka.bharati@rupeeiq.com