Launching The First Balanced Hybrid Fund in the Industry

You have more than two decades of experience in financial services, including more than a decade in the domain of Mutual Funds. How did the switch to Mutual Funds take place for you?

Over the course of 25 years, I have been a part of the asset management side of the business and have also previously worked in a client-facing role, which has equipped me to understand investor expectations and evaluate various investment solutions. Now, as Head of Sales at 360 ONE Asset, I can build on my previous experience and learnings to help strategise and ideate innovative investment solutions that fill the gaps in an investor’s portfolio.

Most AMCs in the industry position themselves as either a marketplace or a niche leader. How are you planning to position 360 ONE Asset?

We are an India-focused, global asset management firm with differentiated products that enable sophisticated investors across the world to participate in India’s unique growth story. As a homegrown company with years of experience, we understand the nuances of India’s demography and demand. A disciplined and active management approach allows us to tap into India’s potential as a unique asset class for long-term growth.

Our deep insights into the India story enable us to create investment strategies that generate sustainable risk-adjusted returns. At 360 ONE Asset, we focus on high-conviction investment concepts. Co-investing alongside our investors forges an alignment of investment strategies with their interests. Not surprisingly, prominent Foreign Institutional Investors (FIIs) and High-Net-Worth Individuals (HNWIs) trust us with their money.

Could you tell us about the New Fund Offer and how it extends your product strategy?

Hybrid funds have garnered significant attention in recent months due to changes in the taxation of debt funds. Many investors are now considering hybrid funds as a tax-efficient alternative to build their debt portfolio. For most clients, the main objective of investing in hybrid funds is to infuse debt exposure to improve the overall post-tax return of the portfolio.

360 ONE Asset is the first to launch a scheme in the Balanced Hybrid Fund category. The fund managers will create a well-diversified portfolio that combines the potential for growth from equity exposure with relatively better stability from debt exposure, offering a balanced risk-return profile.

The fund will maintain equity allocation between 40% equity and 60% debt and vice versa, depending on market conditions. The fund managers can adjust the allocation* (within the asset allocation limit as specified in the SID) between equity and debt depending on market conditions.

*Please refer SID for detailed asset allocation for this fund. (https://iiflmf.com/sites/mf/files/2023-08/360-ONE-Balanced-Hybrid-Fund_Scheme-Information-Document.pdf)

^P/B value considered is of S&P BSE Sensex Price to Book Ratio. The above table is for illustration purpose only and based on current market condition and is subject to change based on fund manager view.

How would you define your investment philosophy?

For equities, a proprietary formulaic approach is used, that has been validated through consistent outperformance. It is a stock selection framework wherein the market is split into four quadrants - Secular-Cyclical-Defensives-Value Traps, based on a track record of companies reflected in 15% growth and 15% Return on Equity (RoE) criteria.

The Secular quadrant forms the core of the strategy. It comprises companies that are consistently growing profits by more than 15% and delivering RoE of more than 15%. These are quality companies that have secular growth drivers in place. The opposite of this is the Value Trap quadrant. It has companies that have struggled to generate 15% RoE and 15% profit growth over a long period of time. We would always be under-weight this quadrant.

Cyclical quadrant has sectors that move with the economic cycle. RoEs tend to be lower, but these sectors witness strong growth in cycles. Defensive quadrant comprises companies with high RoEs but modest growth over the long term. We allocate weights between these two quadrants based of its view of the macro environment and economy.

On the debt side, our philosophy is to focus on “Sustainable Returns” by prioritising Safety and Liquidity. The investment management process relies on analytics and research to achieve risk-adjusted returns in each product category, thereby defining an asset allocation and duration strategy that matches the risk characteristics of the corresponding schemes.

Will the fund be more focused on large-caps or mid-caps? Will it include any small-caps?

The equity portion of the fund will be invested across market capitalisation without any bias. This enhances the ability to diversify the portfolio based on the needs of the market environment and provides a wider set of investment opportunities.

Will you focus more on the duration or credit play in the fund?

• Style: Accrual-driven strategy with a focus on maintaining the highest credit quality (80%-100% AAA allocation)


• Duration: Low-interest rate risk, with an aim to maintain a modified duration of 2-3 years


• Relative Safety: Our endeavour is to maintain a minimum 80% allocation in AAA Corporate bonds and Sovereign bonds. The 20% allocation is likely to not go below AA+.


• Tactical Opportunity: The fund may expose itself to government Securities to gain tactical opportunity from volatility in duration.


• Liquidity: Relatively liquid portfolio primarily composed of Sovereign and AAA Corporate bonds

Why do you think now is a good time to invest in this fund?

In the current market scenario, opting for a balanced fund makes strategic sense. These funds provide an effective way to spread investments across asset classes, reducing volatility, while aiming for long-term risk-adjusted growth.

On the debt side, the current yield environment makes the valuations attractive. Other key benefits include:

• True to Label – It invests in pure equity and debt assets, aiming to maximise risk-adjusted returns. The fund will not invest in arbitrage opportunities to meet equity taxation.


• Taxation – As the fund will maintain an equity allocation of above 40% but below 60% at any given point in time, the long-term capital gains (LTCG) earned will be eligible for the indexation benefit. After indexation, LTCG shall be taxed at 20% after three years.
  
  (Please consult your tax advisor for tax related matters)

How many schemes are you currently managing in the Mutual Fund space and what are your plans for new product launches in the future?

We are currently managing four equity schemes and two debt schemes. We are committed to maintaining our focus on delivering innovative strategies in the mutual fund arena whenever opportunities arise.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully