NFO Review: BOI AXA Mid-Cap Equity & Debt Fund
Jul 05, 2016

Author: PersonalFN Content & Research Team

An open-ended equity oriented hybrid fund with an objective to provide capital appreciation and income distribution to investors.

Summary

Type	An Open Ended Equity Scheme	Benchmark Index	70% Nifty Midcap 100 Index + 30% CRISIL Short Term Bond Fund Index
Min. investment:	-Lump sum Rs 5,000/- and multiples of Rs 1,000 thereafter - Systematic Investment Plan - Rs 1000 and in multiples of Rs 100 thereafter	Plans: Options:	Regular Direct Growth Dividend -Dividend Payout -Dividend Reinvestment* *default option
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%
Entry Load	Nil	Exit Load:	1% if redeemed within 12 months from the date of allotment
Issue Opens	29-Jun-16	Issue Closes:	13-Jul-16

Investment Objective*

The schemes’ investment objective is to provide capital appreciation and income distribution to investors from a portfolio constituting of mid cap equity and equity related securities as well as fixed income securities.

However, there can be no assurance that the income can be generated, regular or otherwise, or the investment objectives of the scheme will be realised.

*Source: Scheme Information Document

Is this fund for you?

BOI AXA Mid Cap Equity and Debt Fund (BAMEDF), is an equity oriented hybrid fund that under normal circumstances, will invest a predominant portion (upto 80%) of its assets in the midcap domain.

Midcap companies fall below the large caps, but have a higher growth potential. They are often less researched and hence, more often, available at a discount to the large caps. Investment in midcaps can be rewarding over a long term, as these companies need considerable time to grow in size. But a noteworthy point is, the midcap space is not as stable as compared to large caps and tend to show fluxes in profitability. They’re more vulnerable vis-à-vis large caps during turbulent times, and for this reason a very high-high return investment proposition.

Besides midcaps, BAMEDF will also invest some portion (upto 35%) of its assets in debt and money market securities to manage the liquidity needs, by endeavouring to construct a well-diversified portfolio that minimizes liquidity risk and credit risk.

Hence based on the above, BAMEDF is suitable for investors with a very high risk appetite, who have a long-term investment horizon of at least 5 years in their journey wealth creation.

How will the fund allocate its assets?

Under normal circumstances, the asset allocation pattern followed by the fund will be as under:

Instruments	Indicative allocations (% of total assets)		Risk Profile High/Medium/Low
Instruments	Minimum	Maximum	Risk Profile High/Medium/Low
Equities and equity related instruments	65%	80%	High
Debt & Money market instruments	20%	35%	Low to Medium

*Source: Scheme Information Document

Further it is stated in the offer document that:

Investments in Asset Backed Securities (Securitized debt) will not exceed 20% of the net assets as at the time of purchase.
Investment in derivatives instruments may be upto 50% of the net assets of the Scheme for the purpose of hedging and portfolio balancing purposes.
The scheme may engage its net assets not exceeding 20% in stock lending. Also not more than 5% of the net assets would be deployed in lending stock with single counter party.
The scheme will not invest in foreign securities and foreign securitized debt. The scheme does not intend to indulge in short selling.

Also, it may be noted that the asset allocation percentages stated above are only indicative and not absolute.

What investment strategies will the fund follow?

In the endeavour to achieve the investment objective set out, BAMEDF will follow the below mentioned investment strategy...

For Equity Investments:
BAMEDF under normal conditions would invest 65-80% of its assets in diversified portfolio constituting of equity and equity related instruments of mid-cap companies. Mid-cap companies are the ones which fund manager believes have potential to grow with good business models. They are defined as companies that are outside top 100 companies in terms of market capitalisation (market capitalisation = number of shares outstanding X closing price per share).

The scheme will not invest in any security with a market capitalization below Rs 500 crore at the time of investment. Also the scheme will not invest in any company which is a part of Nifty 50 Index. It will invest in any security which is part of Nifty Free Float Mid Cap Index (Nifty Midcap 100 Index).

The scheme will follow an actively managed approach and will grab the opportunities in mid cap universe. The fund manager will apply a top-down approach to shortlist stocks for portfolio construction. In this way he would look at global and Indian economy, domestic policy environment and stock valuations. This will help in shortlisting the industries which have potential to outperform. The final stocks will then be decided following bottoms-up process wherein the stocks will be picked on the basis of their valuations. The fund manager would take help of qualitative framework of Macro, Valuation, Policy and Sentiment (MVPS). And the sentiments would be gauged on factors such as:

Positive / Negative breath of the market;
Inflows / outflows into equity mutual funds; and
Buying / Selling by Foreign Institutional Investors (FIIs)

For Debt Investments:
The fund manager aims to create a well-diversified portfolio with disciplined investment process. The BAMEDF is also mandated to invest in debt securities with high credit rating in order to mitigate liquidity risk and credit risks. The funds will be managed keeping the scheme’s objective in mind with long-term investment horizon.

To construct a portfolio of debt securities, BAMEDF will follow five stage investment process:

Macro research & asset allocation;
Micro research;
Security selection;
Portfolio construction / balancing; and
Performance monitoring

The above process will be research oriented and comprise of both -- quantitative as well qualitative factors.

Macroeconomic call will be taken on interest rate direction through detailed analysis of various influencing factors like inflation, money supply, government borrowing, private sector borrowing, currency market movement, central bank policy, domestic fiscal and monetary policy, global interest rate scenario and market sentiment. Interest rate direction call will be supplemented by technical analysis of market and short term influencing factors like trader position, auction/issuance of government/corporate securities, release of economic numbers etc. Interest rate direction call and anticipation of yield curve movement will form the basis of portfolio positioning in duration terms. Holding period return analysis will decide the portfolio selection.

Credit research will be done on a regular basis for all companies. Credit research will include reports as well as rating rationales and other inputs from external agencies. Both qualitative and quantitative inputs will form part of the final decision.

The scheme will invest only in those debt securities that are rated investment grade by a domestic credit rating agency such as CRISIL, ICRA, CARE, FITCH etc. the fund manager may invest in unrated debt securities which he believes to be of equivalent value. Prior approval from Board of Directors of the AMC and the Trustee is needed for investing in unrated debt securities.

The corpus of the scheme will invest in debt securities privately issued by Government of India, state and local governments, government agencies, scheduled commercial banks, non-banking financial companies, statutory bodies, public sector undertakings, development financial institutions, supra-national financial institutions, corporate entities and trusts. Investments in money market instruments would include but is not limited to treasury bills, commercial papers, reverse-repo agreements, CBLOs (Collateralised Borrowing and Lending Obligation), CDs (Commercial Deposits) of scheduled commercial banks and development financial institutions, bills of exchange/promissory notes of public sector and private sector corporate entities.

The fund may invest in units of mutual funds as well. The fund may invest in derivative instruments like Interest Rate Swaps, Forward Rate Agreements and such other derivative instruments permitted under the Regulations.

Fund Manager Profile

Mr David Pezarkar: He has over 21 years of experience in fund management industry and holds a Bachelor’s degree in Arts (B.A.) with specialisation in Economics and has done Masters in Management Studies.

Mr Piyush Baranwal: He has over 8 years of experience in portfolio management and trading of fixed income securities. He has to his credit a Bachelor’s degree in Engineering (B.E.), Post Graduate Diploma in Business Management (PGDBM) and CFA(USA).

Fund Outlook

After evaluating the fund’s objective, investment and portfolio strategy, it is clear that BAMEDF will largely invest in equity & equity related instruments in midcap category. Hence the fortune of BAMEDF would be closely linked to stocks in the midcap domain. Given the global cues -- ‘Brexit’, China’s economic slowdown, morose economic conditions in Japan, Federal Reserve’s endeavour to normalise interest, amongst host of others; turbulence would be witnessed by the market, and midcaps during such times, are likely to be vulnerable. For market to be unimpeded the domestic macroeconomic variables need to be encouraging and are reforms need, especially GST. The path to interest rates would also decide the construction of the debt portfolio.

Hence long-term capital appreciation and income distribution would be hinged on how well the fund manager plays the opportunities and challenges – both in the equity and debt market segment. But BAMEDF is expected to carry high risk while achieving its investment objective. BAMEDF funds can generate huge returns in bull phase and at the same time can wipe out the earnings in bear phase of market.

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

‘PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Disciplinary history

There are no outstanding litigations against the Company, it subsidiaries and its Directors.

Terms and condition on which its offer research report
For the terms and condition for research report click here.

Details of associates

Money Simplified Services Limited;
PersonalFN Insurance Services India Limited ;
Equitymaster Agora Research Private Limited;
Common Sense Living Private Limited;
Quantum Advisors Private Limited;
Quantum Asset Management Company Private Limited;
HelpYourNGO Private Limited;
HelpYourNGO Foundation;
QIEF Management LLC, Mauritius
Natural Streets for Performing Arts Foundation;
Primary Real Estate Advisors Private Limited;
Rahul Goel;
I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest

Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company, except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF and our associates has financial interest in the subject company.
Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation

Neither QIS nor it's Associates have any compensation from the subject Company in the past twelve months.
Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure

The Research Analyst has not served as an officer, director or employee of the subject Company.
QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Subject Company means Mutual Fund Schemes

Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667

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Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667