Tata Mutual Fund Introduces Tata Business Cycle Fund

Jul 16, 2021

Tata Mutual Fund has launched an open-ended equity scheme – Tata Business Cycle Fund.

The scheme will follow business cycles-based investing theme.

The investment objective of generate long-term capital appreciation by investing with focus on riding business cycles through allocation between sectors and stocks at different stages of business cycles.

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.

Under normal circumstances, 80% to 100% of the funds portfolio will be invested in Equity & Equity related instruments selected on the basis of business cycle. The Scheme will invest 0% to 20% of its assets in other Equity & Equity Related Instruments. Whereas upto 20% of its assets can be invested in Debt and Money Market instruments & Gold ETF. The Scheme may also invest 0% to 10% of its net assets in Units issued by REITs and InVITs.

The investment strategy of Tata Business Cycle Fund as mentioned in the Scheme Information Document (SID) is as follows,

Tata Business Cycle Fund will be a diversified equity fund which will invest predominantly in equity and equity related securities with focus on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles in the economy.

Business cycles in an economy are typically characterized by the fluctuations in economic activity measured by real GDP growth and other macroeconomic variables.

A business cycle is basically defined in terms of periods of expansion and contraction. During expansion, an economy experiences an increase in economic activity as evidenced by real GDP growth, industrial production, etc whereas during contraction, the pace of economic activity slows down.

The business cycle is a critical determinant of equity sector performance over the intermediate term and the relative performance of equity market sectors typically tends to rotate as the overall economy shifts from one stage of the business cycle to the next, with different sectors assuming performance leadership in different economic phases.

Tata Business Cycle Fund would aim to deploy the business cycle approach to investing by identifying such economic trends and investing in the sectors and stocks that are likely to outperform at any given stage of business cycle in the economy.

The fund manager will consider economic parameters (like Current Account Deficit, fiscal deficit, interest rates, inflation), investment indicators (like investment in capex, new projects cleared, etc.), business and consumer sentiment (purchasing manager index, business confidence index, sales of various consumer discretionary products, etc.) to decide on the expansion or contraction phase.

For example, during period of expansion, the Scheme would aim to predominantly invest in stocks of companies in the cyclical sectors as they tend to outperform the broader market during expansionary phase. Similarly, during period of contraction the Scheme would look to invest in defensive sectors stocks or sectors that are less sensitive to changes in overall economic activity.

The fund managers would combine a clear macro view with bottom-up stock selection approach for managing Tata Business Cycle Fund. The fund manager will favour companies that offer the best value relative to their respective long-term growth prospects, returns on capital and management quality. When assessing a company, the fund managers will focus on understanding how each of these factors will change over time.

During times of global recession or crisis, the Scheme may also look at investing in Gold ETFs as it can provide some insulation against the downside risk in equity portfolio given the negative correlation between the two asset classes.

Investments in Foreign Securities shall be subject to the investment restrictions specified by SEBI/RBI from time to time. The fund managers will consider all relevant risk before making any investment in Foreign Securities.

Further, the portfolio of the Scheme will be constructed in accordance with the investment restrictions specified under the Regulations which would help in mitigating certain risks relating to investments in securities market.

Tata Business Cycle Fund may invest in equity derivatives instruments to the extent permitted under and in accordance with the applicable Regulations, including for the purposes of hedging, portfolio balancing and optimizing returns. Hedging does not mean maximization of returns but only attempts to reduce systemic or market risk that may be inherent in the investment.

Tata Business Cycle Fund’s performance will be benchmarked against Nifty 500 TRI (Total Return Index).

The fund will be managed by Mr Rahul Singh (equity), Mr Murthy Nagarajan (debt), and Mr Venkat Samala (overseas).

The NFO opens for subscription on July 16, 2021, and closes on July 30, 2021. The scheme will reopen for continuous sale and repurchase on or before August 11, 2021.

The fund’s NAV is priced at Rs 10/- per unit during the NFO period. The minimum subscription amount is Rs 5,000 and in multiples of Re 1 thereafter.

The fund offers Regular Plan and Direct Plan having Growth Option and Payout of Income Distribution cum Capital Withdrawal Option (Re-investment and Pay-out facility).