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ASSET ALLOCATION AND INVESTMENT STRATEGIES OF MUTUAL FUNDS IN INDIA

ASSET ALLOCATION AND INVESTMENT STRATEGIES OF MUTUAL FUNDS IN INDIA. Trends in Asset Allocation-A Micro view. The asset allocation pattern is an important source of the performance of any investment operation.

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ASSET ALLOCATION AND INVESTMENT STRATEGIES OF MUTUAL FUNDS IN INDIA

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  1. ASSET ALLOCATION AND INVESTMENT STRATEGIES OF MUTUAL FUNDS IN INDIA www.pptmart.com

  2. Trends in Asset Allocation-A Micro view • The asset allocation pattern is an important source of the performance of any investment operation. • Another reason why asset allocation is important in mutual fund operation is that the individual unit-holders’ investment decisions are influenced by the pattern of asset allocation indicated in the offer documents. • Therefore, funds should strictly maintain the pattern indicated in the offer document. www.pptmart.com

  3. Allocation of assets under select schemes www.pptmart.com

  4. Allocation of assets under select schemes www.pptmart.com

  5. Allocation of assets under select schemes www.pptmart.com

  6. According to Intelligent Investors, 31 May 2000, most fund managers seem to have paid scant attention to managing portfolio risk, judging by the portfolios of funds schemes. www.pptmart.com

  7. It says, ‘In fact, some have even violated the spirit of the SEBI guidelines on mutual fund investments, aimed at reducing risk. Many plain equity schemes, including several balanced funds, have invested more than 10% of their corpus in a single stock.’ www.pptmart.com

  8. As per the SEBI mutual funds regulation, no mutual fund scheme shall invest more than 10% of its corpus in the equity or equity-related instruments of any company. • Investment of more than 10% in a single company generates the concentration risk. www.pptmart.com

  9. Investment Strategies • Most funds neither intimate the investors of thebroad philosophy of the fund, nor indicate themethod of stock selection or the investment strategy to be followed during different market cycles and time periods. www.pptmart.com

  10. Investment Strategies of Indian Mutual Funds(Sadhak. H (2002) Mutual Funds in India: Marketing Strategies and Investment Practices, Response Books) www.pptmart.com

  11. Investment Strategies of Indian Mutual Funds www.pptmart.com

  12. Very few funds have indicated their asset allocation pattern or the particulars of funds management. • In fact, none of the offer documents mentions any specific funds management strategy (such as strategic or tactical allocation). • Rarely do they indicate their stock selection style (e.g., top-down or bottom-up). www.pptmart.com

  13. P. Narasimham (1999) ‘Asset Allocation of Indian Mutual Funds’ Unpublished • Studied 30 schemes launched by six mutual funds • Two public sector funds • Two private sector funds • Two foreign funds operating in Indian market. • Of the 30 schemes • growth schemes = 8 • income schemes = 17 • balanced schemes = 5 www.pptmart.com

  14. P. Narasimham (1999) ‘Asset Allocation of Indian Mutual Funds’ Unpublished • Findings: • Asset Allocation • None of the fund managers adopted any particular allocation strategy to manage their money, whether it was an income scheme or a growth scheme. • Management style • Of the six funds, only one public sector fund followed the top-down approach for stock selection; the remaining five followed the bottom-up approach. www.pptmart.com

  15. Conclusion made by the researcher • ‘….Many of these funds suffered from bad performance mainly because the fund managers did not take a scientific and objective look at the investment options available… Their personal biases also affected the investment decisions, which greatly affected the performance of the funds.’ www.pptmart.com

  16. Investment Strategies • The Analyst Mutual Fund Special 2005 explores the investment strategies of some Mutual Funds. MDs of different funds were interviewed by asking the following questions: • What is your investment style? • How do you selects stocks? • What is your asset allocation strategy? www.pptmart.com

  17. N R Ramanujam, MDAMC –Canbank Mutual Fund • Canbank MF always tries to maximise the performance of the fund by careful stock selection through bottom up approach. Fundamental factors are the main criteria for stock selection/ investment with sole objective to achieve higher return over a given period of time. Portfolios are subjected to periodical review and risk management tools are strictly applied. Our focus will be on those sectors which are expected to farewell, considering the domestic and global senario. www.pptmart.com

  18. T P Raman, MDSundaram Mutual Fund • Investment style, stock selection and asset allocation are all fund specific and are highly process-driven in our fund house. We have a full-fledged research team that analyzes every sector and various organizations in ensuring the best returns out of our investments. www.pptmart.com

  19. Shashi Krisnan, CEOChola Mutual Fund • The investment process lays emphasis on superior stock selection. The stock selection process lays emphasis on the following four factors: • Enduring business model, • Management quality, • Change in business fundamentals, and • Valuation • We do not follow momentum investing and event-based investing. We also believe in adequately balancing concentration and diversification risk in our portfolio. Through superior and disciplined stock selection and appropriate risk management practices, the fund aims to deliver consistent investment performance. www.pptmart.com

  20. Nilesh Shah, CIOPrudential ICICI Asset Management Company Ltd. • We have clearly defined the objectives and mapped the positioning for each of our funds on both, the equity and debt side. The investment style, portfolio composition, asset allocation and risk level differs from scheme to scheme. Due to the clear positioning, our respective fund managers have a clear operating framework and our investors are clear about the risk-return profile of each of our funds. www.pptmart.com

  21. On the equity side, we use a research-oriented bottom up approach in stock picking in an attempt to optimize risk-adjusted returns to our investors. On the debt side, we seek to optimize returns to the investors on a risk-adjusted basis by striking the right balance of liquidity risk, credit risk and interest risk, depending upon the objectives of the scheme. www.pptmart.com

  22. What mechanisms do you have in place so that you can keep up your performance even in challenging times? • There are various techniques that we follow to minimize downside our schemes during challenging times. • These include • the use of derivatives, • switching to investment options that have lower • downside, or • increasing the allocation to cash. • We employ the suitable technique depending upon our view of the market and the invesment pattern of the scheme stated in the offer document. www.pptmart.com

  23. S K Das, CIOLIC Mutual Fund • We follow a bottom-up strategy with regards to selection, keeping in view medium to long-term growth prospects. www.pptmart.com

  24. Investment style based on interview published by Mutual Funds Insight (Value Research) 15 October-14 November 2004 www.pptmart.com

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  33. Performance Evaluation of Indian Mutual Funds • Source: Value Research, Mutual Fund Performance Report, New Delhi, March 2001. www.pptmart.com

  34. Return Average of Fund categories(As on 31 March 2001) www.pptmart.com

  35. Return Average of Fund categories(As on 31 March 2001) www.pptmart.com

  36. Investment Research • Investment research in India, is in the stage of infancy • Management facts are not fully analyzed. • Management weaknesses are not examined and no realistic assessments are made of a company’s future plans • Excessive emphasis on company analysis has overshadowed economic and debt market analysis. www.pptmart.com

  37. Investment Research • Researchers in mutual funds have paid the maximum attention to equity research which concentrates on analyzing and locating potential equities. • However, it has generally failed to produce the desired results, i.e., to identify potential equities. • This is because equity researchers follow a bottom-up rather than top-down approach. • In general, the top-down method has been found to be more successful. www.pptmart.com

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