The answer is blowing in the wind
The George brothers’ Avatar small wind turbine is generating electricity for troops in Leh
“Buy low, sell high” or “buy when others are fearful and sell when they are greedy”. These phrases are often used to describe ideal investment strategies. Easier said than done, is it not?
What if there was a systematic way to actually do it, i.e., buy equities when prices are low and sell when they are high? This is what Dynamic Asset Allocation (DAA) strategy aims to do.
Different asset classes seldom behave in tandem. We carried out a study on the performance of debt and equity represented by the CRISIL 10 Year Gilt Index and the Nifty 50 Total Return Index. This performance was for one-year periods ending on March 31 each year. Starting March 31, 2002 until March 31, 2019, out of the 17 years, equity outperformed debt on 12 occasions, whereas debt outperformed equity on five occasions. Between March 31, 2019, and July 31, 2019, the Nifty 50 TRI delivered absolute negative returns of 3.76 per cent, with an annualised standard deviation of 16 per cent. On the contrary, the CRISIL 10 Year Gilt Index delivered an absolute positive return of 9.23 per cent with an annualised standard deviation of 5 per cent. Fair to say then, every asset class goes through its performance cycles.
In the context of Indian mutual funds, investors can opt for DAA or a Balanced Advantage Fund (BAF) that falls under the broader category of hybrid schemes. The DAA strategy fundamentally involves increasing allocation to equity as it becomes cheaper and vice-versa. That way, the portfolio value will fall less compared with a pure equity portfolio, though it may underperform in a bull market. However, the big advantage is that such funds tend to have significantly lower volatility than pure equity funds, and hence, can be viewed as less risky from an investor’s perspective.
Most funds in the BAF category use certain quantitative models which give an indication of how expensive the equity market is and accordingly suggest the optimum allocation to equity. Fund managers use various factors such as price to equity, price to book value, interest rates, and dividend yield for this purpose. This allows the funds to be managed in a disciplined and objective way rather than the fund manager forming a subjective opinion about how expensive the market is.
The DAA/BAF category of mutual funds also tend to be tax-efficient because they always try to maintain a gross equity exposure of 65 per cent so that they are treated as equity funds for taxation purposes. That way, investors can claim the benefits of long-term capital gains if they sell the units after holding for a year. This is achieved by judiciously investing a part of the money in arbitrage positions that are fully hedged. The remaining money, which can be 0-35 per cent of the assets, is usually held in relatively low-risk debt instruments.
The real beauty of BAF is that it takes the trouble of timing the market away from investors. That is because the fund itself tends to have a mechanism which in a way decides on the timing.
The writer is CEO of of Union Asset Management Company. Sources: AMFI, MFI Explorer
The George brothers’ Avatar small wind turbine is generating electricity for troops in Leh
The Spanish flu (1918) devastated a port city like Mumbai. Could the lessons help as we brace for a second ...
Though the number is still woefully small, the good news is that more Indian companies are auditing their ...
Post-pandemic, airlines may have to combine punctuality with heightened passenger services, including safety, ...
Three-in-one: Passive debt funds come at a low cost and have high-quality portfolios. Some offer return ...
Trend in the rupee movement and Q4 earnings can give direction to the market
There is room for improvement in fund transfer options
Silver looks positive but lacks the higher volumes required to substantiate bullishness
Murder is a theme that is unlikely to darken and yellow with time, the writer Truman Capote had once said.
The iconic punk rock band took a whole generation along as they toured the globe for 22 years
On April 10, 1970, Paul McCartney announced that he was leaving The Beatles for ‘personal and professional ...
A model rehabilitation project for 100 families of rescued bonded labourers kicks off in Tiruvannamalai, ...
Marketers are padded up, sponsorship deals have been struck, and campaigns are rolling out. Now let the games ...
And what marketers can possibly do to bring it back in our lives
The agency has changed form over the years but its lustre has not dimmed
Media Factory has purchased the majority stake held by Sam and Lara Balsara of Madison World in Madison Media ...
Three years after its inception, compliance with GST procedures remains a headache for exporters, job workers ...
Corporate social responsibility (CSR) initiatives of companies are altering the prospects for wooden toys of ...
Aequs Aerospace to create space for large-scale manufacture of toys at Koppal
And it has every reason to smile. Covid-19 has triggered a consumer shift towards branded products as ...
Please Email the Editor