The Hindu Business Line : Kotak Mahindra MF moots Fund of Funds

KOTAK Mahindra Mutual Fund has lined up a Fund of Funds (FoF) that will chiefly invest in diversified equity schemes, including a select few managed by other fund houses.

Kotak Research FoF will have Kotak Securities Ltd as the agency designated to recommend the list of investible schemes. The investment objective of the FoF, which will have Nifty as its benchmark, is to generate long-term capital appreciation.

The fund manager will under normal circumstances maintain a 20-25 per cent exposure to one or more diversified equity products in the Kotak MF stable, the offer document sent to SEBI for clearance has mentioned. Kotak Securities will periodically furnish a `recommended list' of diversified schemes, those managed by other players.

The usual asset allocation will be 90-100 per cent in open-ended equity schemes carrying medium-to-high risk profiles. The fund manager will also normally invest in Kotak MF's liquid and floating rate schemes.

For the purpose of investing, all equity schemes have been divided into two categories: Diversified Large Cap and Diversified Aggressive. Listed within the former will be schemes which have an average 70 per cent of their portfolios exposed to large cap companies. These are companies with market cap of over Rs 1,500 crore.

Schemes in the Diversified Aggressive category will be those which have their investments spread across sectors and which have invested on an average less than 70 per cent in large cap names.

There will be at least five schemes in which Kotak Research FoF will invest, the offer document has mentioned.

Key role for Designated Agency

THE fund manager, according to the offer document, needs to appoint a `Designated Agency' (DA) to secure the recommended list of schemes. The DA may be a bank, a research house or a distribution outfit. It may also charge fees, which need to be borne by the asset management company. The review and rebalancing of portfolios will be based on its recommendations.

Kotak Securities, the DA in this case, is a stockbroker and distributor of primary market offerings. It is a joint venture between Kotak Mahindra Bank and investment banking firm Goldman Sachs. It will follow two parameters to ascertain the universe of investible schemes for the FoF. These pertain to investment style and consistency of performance.

At the time of investment, the FoF will try to have an equal allocation to Kotak MF underlying schemes irrespective of category. Also, it will seek to have an equal allocation to non-Kotak MF schemes within each category.