Reliance Equity Savings Fund

An open-ended equity scheme with the primary objective of investing in arbitrage opportunities & pure equity investments along with investments in debt securities & money market instruments.

Summary

Type	An Open Ended Equity Scheme	Benchmark Index	40% of Crisil Liquid Fund Index + 30% of Crisil Short Term Bond Fund Index + 30% in CNX Nifty
Min. investment: Additional purchase:	Rs.5, 000/- & in multiples of Re. 1 thereafter Rs 1,000 and in multiples of Re 1 thereafter	Plans:	Dividend Plan: Dividend Payout Option Dividend Re-investment Option Monthly Dividend Payout Option Monthly Dividend Reinvestment Option Quarterly Dividend Payout Option Quarterly Dividend Reinvestment Option Growth Plan: Growth Option Bonus Option
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%
Entry Load	Nil	Exit Load:	For exit within 1 year from the date of allotment – 1 % For exit after 1 year from thedate of allotment – Nil.
Issue Opens	May 12, 2015	Issue Closes:	May 26, 2015

 

Investment Objective*

The primary investment objective of this fund is to generate income and capital appreciation by investing in arbitrage opportunities & pure equity investments along with investments in debt securities & money market instruments. However, there can be no assurance or guarantee that the investment objective of the scheme will be achieved.

*Source: Scheme Information Document

 

Is this fund for you?

The scheme will seek to achieve its investment objective primarily by employing various strategies which seek to exploit available arbitrage opportunities in markets along with pure equity investments.

The stock selection strategy would be a blend of top down and bottom up approach without any sector or market capitalization bias. All companies selected will be analysed taking into account the business fundamentals like nature and stability of business, prospects of future growth and scalability, financial discipline and returns, valuations in relation to broad market and expected growth in earnings, the company’s financial strength and track record.

The percentage allocation to un-hedged equity will be done on the basis of an internal model with Price/ Book Value of CNX Nifty as the primary factor for deciding the allocation. This model will proportionately re-adjust the Unhedged Equity Position weight within the asset allocation limits stated above based on over/under valuation of the equity markets.

The equity and derivative markets have experienced enormous growth in India in the last few years. The market provides the investor the ability to derive returns from the various strategies enumerated below.

The market is not always efficient to the extent of mispricing between the derivative market and the underlying cash market. These techniques differ in that each method attempts to exploit a different form of imperfection in the underlying equity and derivatives market and thus expose the investor to different forms of risk. However, when such opportunities are not available, the scheme may invest in short term debt securities or money market instruments.

The asset allocation under normal circumstances

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equities and equity related instruments:	65%	90%	Medium to High
- Derivatives including index futures, stock futures, index options, & stock options, etc. backed by underlying equity (only arbitrage opportunities)*	25%	70%	Low to Medium
- Unhedged Equity Position#	20%	40%	High
Debt and Money market instruments** (including investments in securitized debt & margin for derivatives)	10%	35%	Low to Medium

#Denote the directional equity exposure which is not hedged. *This denotes only hedged equity positions by investing in arbitrage opportunities in the equity market. The fund manager in the above case can therefore take exposure to equivalent stock/ index futures & create completely covered positions. The margin money deployed on these positions would be included in Money Market category **
including securitized debt up to 30%

 

The asset allocation when adequate arbitrage opportunities are not available in the Derivative and Equity markets:

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equities and equity related instruments:	20%	65%	Medium to High
- Derivatives including index futures, stock futures, index options, & stock options, etc. backed by underlying equity (only arbitrage opportunities)*	0%	45%	Low to Medium
- Unhedged Equity Position#	20%	40%	High
Debt and Money market instruments** (including investments in securitized debt & margin for derivatives)	35%	80%	Low to Medium

#Denote the directional equity exposure which is not hedged. *This denotes only hedged equity positions by investing in arbitrage opportunities in the equity market. The fund manager in the above case can therefore take exposure to equivalent stock/ index futures & create completely covered positions. The margin money deployed on these positions would be included in Money Market category.
** including securitised debt up to 30%

(Source: Scheme Information Document)  

The performance of Reliance Equity Savings Fund will be measured against 40% of Crisil Liquid Fund Index + 30% of Crisil Short Term Bond Fund Index + 30% in CNX Nifty Index.

The fund intends to invest in a mix of equity and related instruments using a blend of arbitrage opportunities alongside unhedged equity investments with a marginal exposure to debt and money market instruments. CRISIL Liquid Fund Index seeks to track the performance of a debt portfolio that includes CBLO, Commercial Papers and Certificates of Deposit. The same is appropriate for benchmarking the income generated by the equity arbitrage opportunities which constitutes the significant part of the portfolio. CRISIL Short Term Bond Fund Index seeks to track the performance of a debt portfolio that includes government securities, AAA/ AA rated corporate bonds, Commercial Papers and Certificates of Deposit. This is appropriate for benchmarking the income generated by the debt & money market instruments in the portfolio. The CNX Nifty is a well diversified 50 stock index accounting for 23 sectors of the economy. It is appropriate for benchmarking un-hedged equity portion of the portfolio which would be a maximum of 40% of the scheme.

 

Fund Manager Profile

Mr. Sanjay H. Parekh has over 17 years of experience in the capital markets. He is a B Com (H) graduate and an ACA.

Mr. Anju Chajjer is a B.Com graduate and a CA.

Ms. Jahnvee Shah is a MBA graduate with a bachelor’s of science degree.

 

Fund Outlook

Considering investment objective, indicative asset allocation and suggestive portfolio strategies, it is likely that, the fund will invest predominantly in debt and money market instruments when equity markets are not volatile. On the other hand, volatile market conditions may throw up enough arbitrage opportunities for the fund to reduce its exposure to debt. Since RESF is also going to invest in unhedged equity, the fund may be riskier than a pure arbitrage fund or a pure debt fund. Thus, the return potential of the fund may also be on the higher side as compared to that of a pure debt fund or an equity arbitrage fund. Success of RESF is contingent primarily upon market volatility and movement of interest rates. This leaves it with little margin for errors.

 

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