IDFC Dynamic Equity Fund

An open-ended equity fund which aims to generate capital appreciation with relatively lower volatility through systematic allocation of funds into equity and equity related instruments; and for defensive purposes in equity derivatives.

Summary

Type	An open–ended equity fund	Benchmark Index	CNX Nifty Index and Crisil Balanced Fund Index
Min. Investment: Additional purchase:	For Lumpsum -> Rs 5,000 and in multiples of Re 1 thereafter For Systematic Investment Plan (SIP) - > Rs 1,000 (subject to minimum 6 instalments of Rs 1,000 each) Rs 1,000 and any amount thereafter	Plans: Options (under each plan):	Direct; and Regular   Growth Dividend (Re-investment and Payout)
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%* *Direct Plan shall have a lower expense ratio excluding distribution expenses, commission, etc. and no commission for distribution of Units will be paid / charged under Direct Plan.
Entry Load	Nil	Exit Load:	1.50% if units are redeemed / switched out within 18 months from the date of allotment Nil if units are redeemed / switched out after 18 months from the date of allotment
Issue Opens	September 17, 2014	Issue Closes:	October 01, 2014

 

Investment Objective*

The primary objective of the scheme is “to seek to generate long term capital appreciation with relatively lower volatility through systematic allocation of funds into equity and equity related instruments; and for defensive purposes in equity derivatives. The secondary objective of the scheme will be to generate income and capital appreciation through investment in Debt & Money Market instruments.”

*Source: Scheme Information Document

 

Is this fund for you?

IDFC Dynamic Equity Fund (IDEF) is positioned as an equity scheme, which will dynamically manage equity and debt exposure in the portfolio – a strategy that is aimed to minimise the risk and optimize the risk-return proposition for a long term investor. IDEF will predominantly invest in equities & equity related instruments (including equity derivatives) and the rest in debt and money market instruments.

While investing in equities, IDEF will deploy a quantitative model and thereby the exposure would be passively managed. IDEF’s exposure to equity as an asset class will be based on month-end weighted average Price-to-Equity (P/E) ratio and 200 Day Moving Averages (DMA) of the CNX Nifty Index. Moreover, the IDEF endeavours to invest in stocks in a proportion that it is as close as possible to the weightages of these stocks in the underlying Index, taking into account change in weights of stocks in the index as well. Also, for hedging purpose, whenever the market movement reflects a bearish tint, then for defensive purpose may also take exposure in the derivative segment of the equity market.

As far as exposure to debt instruments is concerned, IDEF will hold varied instruments (including G-Secs) across maturities and the allocation thereto would be based on view on the interest rate and market conditions.

Hence, although IDEF is a dynamic fund, it focuses on quant model to invest in equities. This makes the fund go by valuations and technical parameter, but is appropriate only for those with a very high risk appetite.

 

Portfolio & Investment Strategy

IDEF in its aim to meet its investment objective will have a predominant exposure to equity & equity related instruments…and the extent of the equity exposure would be guided by an underlying quantitative model. But the fund manager will follow a passive investment strategy and take equity exposure depending on opportunities available at various points in time based on the month-end weighted average P/E ratio and 200 Day Moving Averages of the CNX Nifty Index. Moreover, IDEF endeavours to invest in stocks in a proportion that it is as close as possible to the weightages of these stocks in the underlying Index, taking into account the change in weights of stocks in the index and the incremental collections / redemptions from the scheme. The index to be invested will be determined on relative valuation of indices based on indices (month-end weighted average P/E ratio of the respective index) amongst themselves. The scheme proposes to track (subject to tracking error) CNX Nifty and CNX Nifty Junior indices as its investment universe. IDEF will switch between indices when the current ratio of the indices’ PE ratios (PE of CNX Nifty/PE of CNX Nifty Junior) is above or below its 18 month standard deviation. The valuation matrix will help to determine whether markets are cheap or expensive relative to their 10 year history, while 200 DMA will help in determining near term sentiments.

Also, for hedging purpose, whenever the market movement reflects a bearish tint, then for defensive purpose may also take exposure in the derivative segment of the equity market.

It is noteworthy that the portfolio turnover of IDEF will be a function of market opportunities, but it would be difficult to estimate with any reasonable measure of accuracy, the likely turnover in the portfolio. Nonetheless, the Asset Management Company (AMC) endeavours to optimise portfolio turnover keeping in mind the cost associated while striking an optimal risk-return trade off.

While investing debt instruments, IDEF shall invest in various types of permitted debt and money market securities (including G-Sec) across maturities. The allocation to various types of debt / money market securities would be based on the fund manager’s view on interest rates and the market conditions.

The performance of IDEF will be tracked against the CNX Nifty Index and Crisil Balanced Fund Index.

The asset allocation which will be followed by the fund will be as under:

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity and Equity Related Instruments	65	100	Medium to High
Equity Derivatives	0	35	Low to Medium
Debt & Money market instruments (including Cash & Cash equivalent)	0	35	Low

*If the Scheme decides to invest in securitised debt, it is the intention of the Investment Manager that such investments will not normally, exceed 15% of the corpus of the Scheme.
Note1: The schemes investments in ADRs and GDRs issued by Companies in India and foreign securities shall be as permitted by SEBI regulations - upto 50% of the net assets of the scheme. However, the scheme shall restrict exposure to ADR/GDR to 20% of the net assets.
Note 2: The scheme shall not invest in Credit Default Swaps (CDS), and shall not undertake short selling and securities lending & borrowing.

(Source: Scheme Information Document)

 

Fund Manager Profile

IDEF will be managed by the duo Ms Punam Sharma and Mr Suyash Choudhary.

Ms Sharma has an experience of over 12 years, of which 11 years has been in the Indian mutual fund industry. She has over 7 years of experience in equity market research spanning companies across market capitalisations and sectors. In her more than a decade long career with the mutual fund industry she has amassed experience in product planning and development, mutual fund research and fixed income training. Prior to IDFC Mutual Fund, her last assignment was with Kotak Mutual Fund where she was responsible for setting up research desk, product planning and development. Ms Sharma is a science graduate (B.Sc) and has to her credit a MBA in Finance. At IDFC Mutual Fund, Ms Sharma manages IDFC Asset Allocation Fund, IDFC Equity Opportunities Fund, IDFC MIP and IDFC Nifty Fund.

Mr Suyash Choudhary has over 11 years of experience and is a Senior Director – Fund Management, who manages the debt mutual fund schemes at IDFC Mutual Fund. Mr Choudhary, in his earlier assignment at HSBC Mutual Fund was the Head of Fund Management, Fixed Income at the fund house. He started his career at Deutsche Bank in Mumbai. At IDFC Mutual Fund, Mr Choudhary manages IDFC All Seasons Bond Fund, IDFC Dynamic Bond Fund, IDFC G-Sec (Investment and PF plan), IDFC G-Sec Short Term Plan and IDFC Super Saver Income Fund.

 

Fund Outlook

While IDEF aims to minimise the risk and optimize the risk-return proposition for a long term investor in the endeavour to achieve its primary investment objective, despite a quant model followed by the fund, portfolio construction will be challenging task. This is because, valuations seem stretched in the upbeat sentiment of the Indian equity market, where the trail P/E of CNX Nifty is floating over the mark of 20.0. Thus if that elicits the fund manager, IDEF’s exposure to hedged equity through derivative trades and debt & money market instruments could be high to begin with for defensive consideration. But then that depends on the responsiveness to the quant model and although passively managed how the fund manager assesses valuations and technical parameters while clocking an optimal risk-return trade off.

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