Should You Park Your Savings In ‘Invesco India Equity Savings Fund’?
Feb 16, 2019

Author: Aditi Murkute

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(Image source: freepik.com)

Invesco India Mutual fund is out with an open-ended equity savings scheme, Invesco India Equity Savings Fund (IIESF).

Considering the current volatile markets stocks picking is difficult. Equity savings fund relatively a new subcategory of hybrid fund posts the recategorization norms offers flexibility to invest in equity (hedged and unhedged), debt & money market instruments and to reduce volatility would choose arbitrage opportunities.

For Equity Savings Funds, under defensive circumstances, the arbitrage portfolio is low-risk, despite having some exposure via derivatives. If there are no arbitrage opportunities available, the scheme has the flexibility to invest in debt.

However, if the overall equity exposure falls below 65%, the scheme could lose its equity status. From a tax implication standpoint, an equity savings fund is classified as an equity-oriented mutual fund scheme. Hence, if redeemed within a holding period of one-year, Short Term Capital Gain Tax (STCG) tax @ 15% will apply. And if redeemed after a period of 1 year, the Long-Term Capital Gains (LTCG) in excess of Rs 1 lakh will be taxed @10%.

Hence IIESF will aim to retain its equity asset allocation to a minimum of at least 65% of its total assets under normal circumstances, and in defensive conditions will allocate mainly to debt and money market instruments.

So, the overall risk of IIESF is moderately high and suitable for investors willing with an investment time horizon of atleast 3 years.

Table 1: NFO Details

Type An open-ended scheme investing in equity, arbitrage and debt. Category Hybrid Scheme-Equity Savings Fund
Investment Objective To generate capital appreciation and income by investing in equity and equity related instruments, arbitrage opportunities and fixed income instruments (including debt, government securities and money market instruments).

However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans  • Direct

• Regular
Options • Growth*

• Dividend (Reinvestment# and Pay out)

*Default option

# Default option for Dividend
Entry Load Nil Exit Load • 0.25% if units are redeemed or switched out on or before completion of 1 month from the date of allotment of units.

• No exit load is payable if units are redeemed/switched-out after 1 month from the date of allotment.
Fund Manager Mr Taher Badshah, Mr Amit Ganatra and Mr Krishna Cheemalapati Benchmark Index NIFTY Equity Savings Index
Issue Opens February 14, 2019 Issue Closes February 28, 2019
(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the Invesco India Equity Savings Fund's asset allocation will be as under:

Table 2a: Asset Allocation under normal circumstances

Instruments Indicative allocations(% of Total Assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity & Equity Related Instruments 65 90 High
of which derivatives including index futures, stock futures, index options & stock options etc. (only arbitrage opportunities) ^ 25 75 Low to Medium
1.2. of which unhedged equity portion^^ 15 40 High
Debt* & Money Market Instruments 10 35 Low to Medium
*Debt includes Government Securities. Debt instruments may include securitized debt (including pass through certificates (PTC)) upto 35% of the net assets of the Scheme.
^The exposure to derivatives would be taken against the underlying equity exposure and denotes hedged equity positions.
^^Pure equity exposure which will not be hedged and is aimed to gain from potential capital appreciation.
(Source: Scheme Information Document)

Under defensive circumstances, the asset allocation of the IIESF will be as follows:

Table 2b: Asset Allocation under defensive circumstances

Instruments Indicative allocations(% of Total Assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity & Equity Related Instruments 15 65 High
of which derivatives including index futures, stock futures, index options & stock options etc. (only arbitrage opportunities) ^ 0 50 Low to Medium
1.2. of which unhedged equity portion^^ 15 40 High
Debt* & Money Market Instruments 35 85 Low to Medium
* Debt includes Government Securities. Debt instruments may include securitized debt (including pass-through certificates (PTC)) up to 50% of the net assets of the Scheme.
The Scheme will not invest in foreign securitized debt.
^The exposure to derivatives would be taken against the underlying equity exposure and denotes hedged equity positions.
^^Pure equity exposure which will not be hedged and is aimed to gain from potential capital appreciation.
The margin money deployed on these positions (both equity and/or debt derivatives) would be included in Money Market category.
(Source: Scheme Information Document)

What will be the Investment Strategy?

The Scheme will invest in both equity and debt securities, employing a unique combination of three investment strategies- pure equity (net long equity), arbitrage and debt. The net long equity exposure is aimed to generate capital appreciation, while arbitrage opportunities and allocation to debt securities will be directed towards providing income and generate stable returns.

The Scheme will take advantage of arbitrage opportunities by exploiting the price differential between cash and derivatives markets.

To select stocks, the Scheme will adopt a combination of a bottom-up and top-down approach. In addition, the fund manager may also utilize the internal model for deciding equity allocation.

The fixed income securities selection will be based on top-down approach, interest rates view and yield curve movements. The Scheme will actively use arbitrage opportunities to hedge the portfolio and generate low volatility returns.

To manage the risks, the fund managers would involve identifying & measuring the risk through various risk measurement tools like but not limited to VAR, tracking error etc. but not limited to these.

Further, the managers have implemented the Bloomberg Portfolio Management System as a Front Office System (FOS) for managing risk. The system has an inbuilt feature which enables the fund manager to calculate various risk ratios, average duration and analyse the same.

Who will manage Invesco India Equity Savings Fund?

Mr Taher Badshah and Mr Amit Ganatra will be handling the equity portion of the scheme while Mr Krishna Cheemalapati will manage the debt portion.

Mr Taher Badshah holds a BE(Electronics) degree plus a MMS (Finance) from Mumbai University.

Mr Badshah has more than 23 years of experience in the Financial Service Industry. He has worked with Kotak Investment Advisors Ltd. as a Fund Manager for 3 years, Motilal Oswal Asset Management Company Ltd. as Senior Vice President and was the Head of Equities for 6.5 years before joining Invesco Asset Management (India) Pvt. Ltd. in January 2017.

Some of the other funds managed by Mr Badshah at the Invesco AMC include Invesco India Smallcap Fund, Invesco India Contra Fund, Invesco India Growth Opportunities Fund, Invesco India Multi-cap Fund, Invesco India Dynamic Equity Fund, and Invesco India Equity & Bond Fund.

Mr Amit Ganatra has a bachelor's degree in commerce(B.Com), is a Charted Accountant and a Chartered Financial Analyst. He has more than 15 years of experience in the Indian equity markets.

Currently, at the fund house, some of the funds which he manages include Invesco India Contra Fund, Invesco India Growth Opportunities Fund, Invesco India Large-cap Fund, Invesco India Financial Services Fund, Invesco India Tax Plan and Invesco India Equity & Bond, Fund.

Mr Krishna Cheemalapati holds a BE(Electronics) degree and has to his credit a PGDBA followed by CFA from ICFAI in Hyderabad. He has over 20 years of experience in the Fixed Income market. Prior to joining Invesco India mutual fund in January 2011, he worked as a Chief Investment Officer and Fund Manager at Reliance General Insurance Company Ltd.

Some of the funds which he manages at the fund house include Invesco India Liquid Fund, Invesco India Treasury Advantage Fund and Invesco India Equity & Bond Fund

The outlook for Invesco India Equity Savings Fund

While IIESF will mainly invest in equity and equity related instrument under normal circumstance and the balance in debt & money market instruments (including government securities). How dexterously the fund manager shifts the asset allocation within equities--between unhedged and hedged portion--and from equities to debt during defensive consideration, remains to be seen.

So, the fortune of IIESF will be closely linked to how resourcefully the fund manager handles the asset allocation, and of course, the underlying instruments it holds in the portfolio, even as it follows a mix of a top-down and bottom-up approach to investing backed by certain research parameters.

In an environment where the near-term sentiments in equity markets will be driven by macroeconomic conditions, global and domestic political developments, along with the outcome of upcoming state and Lok Sabha elections, the markets are expected to remain highly volatile.

Nevertheless, the mandate of the fund could come as precaution provided the fund manager uses it thoughtfully to construct the investment portfolio, both equity (hedged and unhedged) and debt, plus even while exploring arbitrage opportunities.


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