Tata balanced advantage fundTata Mutual Fund has floated an open-ended balanced advantage fund namely TATA Balanced Advantage Fund. The NFO will open for subscription on January 9, 2019 and will close on January 23rd. The fund will reopen for investment on or before February 1, 2019 for subscription and redemption. The fund is a dynamic asset allocation fund that will change its positioning as per changing market scenarios and the fund house views. This fund aims to provide capital appreciation and income distribution to the investors by using equity derivatives strategies, arbitrage opportunities and pure equity investments.

Asset Allocation and Strategy

Under normal circumstances the fund will follow below mentioned asset allocation:

Instruments Indicative allocations (% of total assets) Risk Profile
Equity and Equity related instruments and Equity Derivatives 65-100% High
Debt (including money market instruments, securitized debt & units of debt and liquid category schemes) & Cash 0-35% Low to Medium

The investment strategy would be aimed at meeting the investment objective of the scheme. The fund manager will invest into opportunities available across the market capitalisation. Investment in companies would be made based on various criteria including sound professional management, track record, industry scenario, growth prospectus, liquidity of the securities, and so on.

The scheme will emphasise on well managed, good quality companies with above average growth prospects. The scheme will use derivatives to hedge the downside risk of the portfolio. The derivatives may also be used for generating returns through arbitrage opportunities. The scheme may also engage in short selling. Short selling means selling of a stock that the seller does not own at the time of trade.

In terms of debt exposure, this fund has a flexibility to take exposure across the credit curve. There is no cap on modified duration or allocation to lower rated corporate bonds. Therefore, basis the market scenario, fund manager can play duration strategy or accrual strategy or a combination of both.

Tata Balanced Advantage Fund is positioned for medium to long term duration and is benchmarked against CRISIL Hybrid 35+65 – Aggressive Index. The 3-year return of this index is 11.23% as on December’18.

The fund will be managed by – Akhil Mittal (will manage fixed income portfolio of the scheme), Sailesh Jain (will manage the hedged /derivative exposure of the scheme), Sonam Udasi & Rahul Singh (will primarily manage the unhedged equity portfolio of the scheme).

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 and gains exceeding Rs 1 Lakh. Short Term Capital Gains tax of 15% will be levied for less than one year holding period.

Key features of the Fund

NFO Period 9th-Jan-2019 to 23rd-Jan-2019
Type of Scheme An open-ended dynamic asset allocation fund
Benchmark Crisil Hybrid 35+65 – Aggressive Index
Min Application Amount Rs 5,000 and in multiples of Re. 1/- thereafter.
Plans and options Regular & Direct Plans Under which following Options are offered
-Dividend (Reinvestment, Payout & Sweep)
Exit Load 1% of the applicable NAV, if redeemed on or before expiry of 365 days from the date of allotment.
Risk Profile Moderately High Risk
Investor Suitability This product is suitable for investors who are seeking
• Capital Appreciation along with generation of income over medium to long term period.
•Predominant investment in equity and equity related instruments as well as in debt and money market instruments.

Rupeeiq Take: Balanced advantage funds are a good offering in market, as they provide investors with dual benefits of high returns potential of equities and regular income through debt exposure. However, this is a high-risk product and could potentially exhibit high volatility in the short run owing to its mandate and investment strategy. As on date, category returns for 1-year period stand at 1.08% while for 3-year period stand at 8.86% (Data Source: Value Research Category Returns). Thus, this product is suitable for savvy investors.

Priyanka Bharati

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