An Open – Ended Hybrid Plan Comprising 3 Funds

Summary

Type : Open-ended Hybrid Scheme

Min. Investment : Rs 5,000

Add. Investment : Rs 500

Face value : Rs 10 per unit

 

Issue opens : January 17, 2011

Issue closes : January 31, 2011

 

Benchmark Index :

 

Education Fund : 70% BSE 200 Index, 30% CRISIL Short Term Bond Fund Index

Marriage Fund : 70% BSE 200 Index, 20% Gold Prices, 10% CRISIL Short Term Bond Fund Index

Savings Fund : CRISIL Short Term Bond Fund Index

 

Entry load : Nil

Exit load :

For Redemption	Load Chargeable* (as % of Applicable NAV)
Education Fund and Marriage Fund:
Within 1 year	3%
Within 2 years	2%
Within 3 years	1%
Savings Fund:
Within 1 year	0.5%

* An exit load will be charged if redeemed within time period mentioned above from the date of allotment or Purchase applying through First in First Out (FIFO) Basis.

Investment Objective*

Education Fund	To seek to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities and to generate reasonable returns through a portfolio of debt and money market instruments to help in generating funds over the long-term to save for the cost of children’s education
Marriage Fund	To seek to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity related securities and to generate reasonable returns through a portfolio of debt and money market instruments. The Fund could also additionally invest in domestic Gold ETFs. This could help generating funds in the long-term to save for the cost of children’s marriage
Savings Fund	To seek to generate reasonable returns predominantly from a diversified portfolio of debt and money market instruments

 

There is no assurance that the objective of the Fund(s) will be realised and the Fund(s) does not assure or guarantee any returns.

 

*Source: Scheme Information Document

Is this fund for you?

A Hybrid Fund is one where investments are made in different asset classes. Such a fund invests in asset classes like equity & equity related instruments, debt & money market instruments, and gold. Thus by having an exposure to different and least co-related securities, such a fund offers the benefit of diversification and helps in managing the returns during turbulent times.

 

Equities provide the chance to earn an extra income through dividends and capital appreciation over a period of time, whereas debt instruments provide the safety and stability of regular income from coupon payments. However, it is noteworthy that in times of market uncertainty, equities can get very volatile which may negatively affect the overall portfolio’s return.

 

However on the other hand, investment in gold (through Gold ETFs) helps in hedging risk thus enhancing the overall fund’s performance. And a noteworthy point is that, gold has a low or negative correlation with most other asset classes; (which means that its price changes are independent of price changes in other asset classes like equities and debt) and thus adding gold to the portfolio provides the fund manager with the flexibility to tilt the allocation made between asset classes so that the fund is positioned to take full advantage of prevailing market conditions.

 

Fidelity India Children’s Plan (FICP) is a hybrid fund which combines equity, fixed income instruments and gold ETFs. The fund offer three distinct funds under it viz. Education Fund, Marriage Fund and Savings Fund, where one can invest in, and each of them are intended to achieve their stated objective. Investors can opt for any of the funds for their investments, depending upon their financial goal – being children education, marriage or mere savings.

 

The FICP “Education Fund” exposes its investors to two asset classes – equity and debt, while the FICP “Marriage Fund” exposes its investors to three major asset classes – equity, debt and gold. The FICP “Savings Fund” on the other hand invests only in debt and money market instruments.

 

Investment diversification through “multiple asset allocation”, as a concept is not very new in India. Mutual fund houses such as Kotak (Kotak Asset Allocation Fund), Canara Robeco (Canara Robeco InDiGo Fund), Taurus (Taurus MIP Advantage) and Reilgare (Religare MIP Plus Fund) have already launched such “multiple asset allocation” funds in the past. Hence the offering from Fidelity Mutual Fund isn’t very unique; it is simply allotting emotionally appealing names to each fund within FICP. But nonetheless this is the first multiple asset allocation fund in the product portfolio of Fidelity Mutual Fund (FIL Fund Management Private Ltd.)

 

Portfolio & Investment Strategy

While investing in equity and equity related instruments, FICP will primarily focus on the bottom-up approach as opposed to the top-down approach. And while identifying stocks (by adopting the bottom-up approach) FICP would analyse a company's business model and financial parameters, valuations and business expectations. The Fund Manager will aim to identify stocks which as per his belief are sound, but which are mispriced and thus offering great value to investors.

 

Similarly while investing in debt and money market instruments the fund management team would take a view on the interest rate movement, supported by quantitative research and include various factors of the Indian economy as well as the development in the global markets. The investment views/decisions would be based on combination of credit analysis of individual exposure and analysis of the macro economic factors to determine the level of interest rates and liquidity. Thus holistically they would consider the following parameters for generating returns to match the investment objective and also to maintain the adequate liquidity to accommodate funds movement.

 

• Prevailing interest rate scenario
• Returns offered relative to alternative investment opportunities
• Quality of the security/instrument (including the financial health of the issuer)
• Maturity profile of the instrument
• Liquidity of the security

 

For debt and money market instruments too, the fund manager would adopt the bottom-up approach to optimise the risk-adjusted returns on the diversified portfolio However, the bottom-up approach for credit issuer and security selection will be complemented by a top-down view for overall duration and credit allocation decisions.

 

The investment strategy of each fund in FICP is as follows:

*Including units of Debt/Fixed Income scheme launched by mutual funds and securitized debt
(Source: Scheme Information Document)

 

Fund Outlook

FICP – Education Fund: As seen in the table above (under portfolio strategy) FICP in the <>“Marriage Fund” follows a 70:30 (70% in equity and 30% in debt) asset allocation, thus positioning itself similar to a balanced fund. Thus the fortune of the fund would be closely linked with the equity markets, followed by the debt markets. The bottom-up approach of investing followed by the fund is pleasing but the success depends upon the fund managers stock picking ability in the present uncertainty of the equity market. Moreover, since it does not have a market capitalization bias it may follow a flexi-cap strategy. However, on the debt side since the present yield levels of the short and long tenor bonds are high; it makes the debt segment look attractive.

 

FICP – Marriage Fund: Under the “Marriage Fund”, since a multiple asset allocation model of investing is followed, it would provide its investors with better diversification benefits. The equity component would enable in fuelling the returns, (if the stock picking is done prudently) whereas the debt investments would provide safety and stability of regular income from coupon payments. However, it is noteworthy that in times of market uncertainty, equities can get very volatile which may negatively affect the overall portfolio’s return. But on the other hand, investment in gold (through Gold ETFs) would help to hedge risk thus enhancing the overall fund’s performance. And a noteworthy point is that, since gold has a low or negative correlation with most other asset classes (which means that its price changes are independent of price changes in other asset classes like equities and debt) the fund manager would have the flexibility to tilt the allocation made between asset classes so that the fund is positioned to take full advantage of prevailing market conditions.

 

FICP – Savings Fund: As this fund would be catering to mere savings, it is positioned as a pure debt fund and the fortune of the same would depend upon how well the fund management team play the interest rates cycles.

 

Benchmark

A custom benchmark which is a blend of the following:

   

Fund Manager Profile

For equity segment:

Mr. Nitin Bajaj is a C.A., and holds an MBA degree from INSEAD. He is having experience of over 11 years. Prior to joining FIL Fund Management Private Limited in 2003, Mr. Bajaj was associated with KPMG / Bharat S. Raut & Co. where he was working as an associate in Transaction Services.

 

For debt segment:

Mr. Shriram Ramanathan has done his PGDBM (XLRI, Jamshedpur) and holds a Bachelor’s degree in Electrical Engineering (Sardar Patel College of Engineering, Mumbai). Moreover he has also earned his CFA degree (CFA Institute, USA). He holds over 10 years experience in fund management and prior to joining FIL Fund Management Private Limited (in 2009), Mr. Ramanathan was associated with ING Investment Management Asia Pacific Hong Kong, ING Investment Management (India) Private Limited, Zurich (India) Asset Management Company, ICICI Bank Limited and Larsen & Toubro Limited.

 

For foreign securities:

Mr. Anirudh Gopalakrishnan holds Bachelor of Arts degree in Economics along with an M.B.A. He has an experience of over 7 years and prior to joining FIL Fund Management Private Limited in 2007, he was associated with McKinsey and Company.

 

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research@personalfn.com Feb 07, 2011 Dear Mr. Sachin, Only Premium subscribers who had subscribed for our subscription based services can see PersonalFN's research view. If you wish to read the Personal FN's Research view kindly subscribe to our independent and unbiased research services. Thanks Team PersonalFN.
kamcaravel5k@yahoo.com Jan 20, 2011 Hi, Do let us know one should invest money in this fund or not.
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sachin_saahil@rediffmail.com Jan 30, 2011 Well,i am a registered user,but still i got a message this user is not allowed to view the requested page. Well this article is more of press release.Dissapointed not to get to read personalfn's views

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