Tell us a bit about the rationale behind launching an equity savings fund at this time.
Union Equity Savings Fund, an open-ended scheme investing in equity, arbitrage and debt, is targeted at investors who are looking for dual benefits of capital appreciation as well as stability in returns. The Schemeaims to generate consistentreturns with an endeavor to minimize risks undertaken to deliver such returns.Currently markets are extremely volatile, making it tricky for investors to make asset allocation decisions. The Schemewould endeavor to make such decisions based on risk reward payoff for the respective asset classes, i.e, Fixed Income and Equity. Additionally, since the gross equity exposure including hedged component of the Schemewill be more than 65% of net assets of the Scheme, the Scheme would enjoy an equity fund taxation treatment.
What's the asset allocation of this Scheme likely to be?
The gross equity exposure for the Scheme is expected to be upwards of 65%of net assets of the Scheme. However, the unhedged equity exposure can range between a minimum of 10% to a maximum of 40%. Fixed income allocation is expected to range from a minimum of 10% to a maximum of 35%.
On the equity side, will you be investing predominantly into large caps or small & mid caps?
The Scheme would invest across Large Cap, Mid Cap and Small Cap Stocks. The Portfolio of stocks would be selected with a combination of top down and bottom up approach. The Scheme aims to remain invested in a diversified portfolio of stocks.
On the debt side, will you be following an accrual or duration led strategy - and why?
In the current scenario, we would be following an accrual strategy of investing in high quality investment grade instruments with shorter term duration for the fixed income investments in the Scheme. We think the strategy carries potential to deliver better returns while undertaking lower risks.
What portion of the portfolio will you be allocating to hedged equities (arbitrage)? Do you think opportunities still exist in the arbitrage space?
Arbitrage exposure would range between a minimum of 25% to a maximum of 80% of scheme assets. Arbitrage normally gives return in line with the short term rates prevalent in the market. We expect the same to continue in the medium to long term as well.
Lastly, what are your target returns from this Scheme over the long term, and what sort of investors should consider investing into this Scheme?
We cannot talk about target returns as it is a forward looking statement. However, our endeavour is to deliver superior risk adjusted returns compared to traditional fixed return investments over a long term period.
Disclaimer: The views expressed or statements made in this document are purely the views of the author and do not necessarily represent the views of either Union Asset Management Company Private Limited or its affiliates.