 "mutual funds, MFs")
Expecting demand to pick up in the midst of a spike in equity valuations, mutual fund (MF) houses have lined up new fund offerings in the balanced advantage fund (BAF) category.
UTI MF launched its BAF on Friday, an open-ended dynamic asset allocation fund; two more — 360 ONE and Bajaj Finserv — filed papers with the capital markets regulator to launch their funds.
After the launch by UTI MF, only nine of the 42 fund houses do not have a BAF offering in their product basket. BAFs invest in a mix of debt and equity and are considered less risky than pure-play equity schemes.
BAF managers have the flexibility to shift their mix between equity and debt depending on market conditions. They aim to provide downside protection during market downturns and capture the upside during market rallies.
The proportion of equity and debt in BAFs is seen as an indication of the fund manager’s assessment of the market scenario at any given point in time.
At the end of June, equity was on the lower side in BAF portfolios, yet higher than the November 2022 levels, when some of the funds had substantially reduced equity allocation.
The markets had peaked last December and then declined as much as 10 per cent before starting their upward journey once more at the end of March. Since this year’s lows on March 24, the benchmark indices have gained more than 15 per cent, pushing valuations above long-term averages.
Ajay Tyagi, head of equities, UTI Asset Management Company, said its newly launched BAF will manage asset allocation based on four valuation factors. “As of end-June, the model has suggested a net equity allocation of about 61 per cent. However, the fund will allocate assets as determined by the proprietary model at the time of portfolio construction,” he said.
The last time there was a flurry of launches in the BAF category was during the second half of calendar year 2021, when overvaluation concerns gripped investors after an extended run-up in the makret.
SBI MF, which was the first to launch BAF back then, had collected a record sum of Rs 14,550 crore.
NJ MF, Life Insurance Corporation of India, and Mahindra Manulife MF were some of the other fund houses to have launched their schemes during the same period.
However, as equity valuations turned more favourable, inflows dried up for BAFs. In the past eight of the nine months, these schemes have seen net outflows. Between October and June, investors pulled out a net Rs 4,100 crore from BAFs, according to data from the Association of Mutual Funds in India.
The trailing 12-month price-to-earnings ratio for the National Stock Exchange Nifty50 Index surged 30x in June 2021. It hovered around the same levels until January 2022. The valuations dropped to reasonable levels since then until they started to pick up again in June. They are now trading at close to 25x.
UTI MF launched its BAF on Friday, an open-ended dynamic asset allocation fund; two more — 360 ONE and Bajaj Finserv — filed papers with the capital markets regulator to launch their funds.
After the launch by UTI MF, only nine of the 42 fund houses do not have a BAF offering in their product basket. BAFs invest in a mix of debt and equity and are considered less risky than pure-play equity schemes.
BAF managers have the flexibility to shift their mix between equity and debt depending on market conditions. They aim to provide downside protection during market downturns and capture the upside during market rallies.
The proportion of equity and debt in BAFs is seen as an indication of the fund manager’s assessment of the market scenario at any given point in time.
At the end of June, equity was on the lower side in BAF portfolios, yet higher than the November 2022 levels, when some of the funds had substantially reduced equity allocation.
The markets had peaked last December and then declined as much as 10 per cent before starting their upward journey once more at the end of March. Since this year’s lows on March 24, the benchmark indices have gained more than 15 per cent, pushing valuations above long-term averages.
Ajay Tyagi, head of equities, UTI Asset Management Company, said its newly launched BAF will manage asset allocation based on four valuation factors. “As of end-June, the model has suggested a net equity allocation of about 61 per cent. However, the fund will allocate assets as determined by the proprietary model at the time of portfolio construction,” he said.
The last time there was a flurry of launches in the BAF category was during the second half of calendar year 2021, when overvaluation concerns gripped investors after an extended run-up in the makret.
SBI MF, which was the first to launch BAF back then, had collected a record sum of Rs 14,550 crore.
NJ MF, Life Insurance Corporation of India, and Mahindra Manulife MF were some of the other fund houses to have launched their schemes during the same period.
However, as equity valuations turned more favourable, inflows dried up for BAFs. In the past eight of the nine months, these schemes have seen net outflows. Between October and June, investors pulled out a net Rs 4,100 crore from BAFs, according to data from the Association of Mutual Funds in India.
The trailing 12-month price-to-earnings ratio for the National Stock Exchange Nifty50 Index surged 30x in June 2021. It hovered around the same levels until January 2022. The valuations dropped to reasonable levels since then until they started to pick up again in June. They are now trading at close to 25x.
