- 3 years ago
This series is a part of the investor education and awareness initiative of Mirae Asset MF in association with Outlook Money. Watch to learn the basics of investing and saving.
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NewsTranscript
00:00 (upbeat music)
00:02 - I'm Dutika Asthana, your host for this session.
00:12 And on behalf of Outlook Money,
00:14 I'm delighted to welcome Mr. Mayuk Dutta,
00:16 Head of Product Strategy and Communication
00:19 at Mirai Asset Investment Managers India.
00:21 The biggest question on the minds of investors today
00:24 is what to do next and where to invest and how to invest.
00:29 Especially in the backdrop of the current volatile,
00:32 uncertain, complex and ambiguous, basically the VUCA world.
00:36 In such a situation where markets are extremely volatile
00:40 and of course, since the beginning of the year,
00:42 we've been seeing very sharp corrections as well.
00:44 Inevitably, you as investors will think about
00:48 what should I do, where should I invest?
00:51 And for how long should I stay invested in this market?
00:54 Now navigating through these unknown waters
00:58 requires adapting to the changing tides
01:01 rather than just sticking to a fixed charted course.
01:05 And in the investment world, of course,
01:07 adaptation is key to survival,
01:09 which is why it's important to understand
01:12 that asset allocation in portfolios
01:15 should be dynamic rather than static in nature.
01:18 And of course, being in the right asset class
01:20 at the right time can make all the difference
01:23 to your investment portfolio.
01:24 Keeping that in mind, the dynamic asset allocation
01:27 or balanced advantage category of mutual funds in India
01:31 addresses a lot of these challenges.
01:33 So today in this webinar, we're going to learn more
01:36 about the dynamic asset allocation series
01:40 in the mutual fund space.
01:43 I am Deepika Asthana, your host for this session.
01:46 And on behalf of Outlook Money,
01:48 I'm delighted to welcome Mr. Mayuk Dutta,
01:50 Head of Product Strategy and Communication
01:53 at Mirai Asset Mutual Fund.
01:55 Welcome Mr. Dutta.
01:57 - Thank you, Deepika.
01:58 Thank you for having us here.
01:59 - So just a little bit about Mr. Dutta,
02:02 he has been associated with Mirai Asset Mutual Fund
02:05 for over 12 years and has rich experience in sales,
02:09 business development, account management,
02:11 credit appraisal, receivables management,
02:13 vendor creation and management.
02:15 So I'm looking forward to this very interesting conversation
02:18 now, Mr. Dutta, so I'm just going to start right off the bat.
02:21 Could you explain to us how a balanced advantage fund works?
02:26 - Okay, so think about it in a manner
02:29 that we have some other equity funds
02:32 which have a free mandate to invest
02:36 in across market capitalization.
02:38 So within the equity space,
02:39 you could probably invest into different sorts of companies
02:42 and that's how those mandates have been given by the rule.
02:46 Same in when it comes to asset allocation,
02:48 there are different sorts of products
02:50 which have certain limits in terms of
02:53 what could be their exposure be in a specific asset class.
02:57 So we have, in that sense, a balanced advantage fund
03:02 or a dynamic asset allocation fund
03:04 and both are actually meaning same
03:06 when it comes to the name of the schemes,
03:08 their objective is same.
03:11 They are allowed to invest into any of the asset classes
03:16 as per the scheme objectives and scheme information
03:19 as they are allowed
03:20 and they could invest across asset classes.
03:22 So you could have a FlexiCap equity fund
03:25 which can invest across market caps.
03:27 Think of this as a Flexi asset product
03:29 which can invest into different asset classes
03:32 at any point of time.
03:33 Yes, it would have certain limitations
03:36 in terms of where it can invest, how much it can invest,
03:39 but overall it can invest across asset allocations.
03:42 So that is why the word dynamic asset allocation
03:44 or the other word could be balanced advantage fund.
03:49 So they can invest between, for example,
03:51 it could invest into debt, equity, arbitrage
03:54 and can move from one asset class to the other.
03:57 And of course, each one,
03:59 we can go a little bit deeper into it,
04:01 but broadly it can go through different asset classes
04:04 as per the rules which are set when you launch a fund
04:07 or how you run a fund.
04:08 - That's interesting to know,
04:09 and I think this term,
04:11 which I don't know if you've been using it
04:13 more frequently elsewhere, but Flexi asset class,
04:17 that's a very interesting way of summing up
04:19 what exactly a balanced advantage fund is, right?
04:22 It's across asset classes, so that's interesting.
04:24 But I think from an investor perspective,
04:27 maybe we can also discuss a little bit about
04:31 how exactly will a balanced advantage fund
04:34 add value to investor portfolios?
04:37 And specifically, if we could discuss this
04:39 from the perspective of managing volatility,
04:41 achieving goals, things like that.
04:44 - Yeah, sure.
04:45 So let me start a little bit of the last question
04:47 and then I'll come into here.
04:49 What is important in that
04:50 when you have an investment product,
04:53 a fund which can invest into different asset classes,
04:56 the way it manages would be dynamically.
04:59 So that's the difference between
05:01 a dynamic stroke balanced advantage category
05:05 vis-a-vis other such products which are available.
05:07 There is something called, let's say as a balanced fund,
05:10 just a balanced fund.
05:11 There is something which is called
05:12 as an equity savings category.
05:14 There is something called as an aggressive hybrid category.
05:17 All of them have the objective
05:21 where they can invest into more than one asset classes,
05:25 but the degree of their participation is different.
05:29 So here in balanced advantage fund,
05:32 this, how is it different from the others
05:34 which can also invest under different asset classes
05:36 is that here it is managed dynamically.
05:40 So a fund manager, depending on certain rules
05:43 and his views or a model
05:45 about how they should move from A asset class to B
05:48 or vice versa or to C.
05:51 So how this category is slightly different from the others
05:54 is that here is a model or a thought process
05:58 or a way of managing a fund, which is dynamic.
06:02 So you could have a situation that at some point of time,
06:05 depending upon where the markets are,
06:07 it could be debt, equity or wherever.
06:09 If a fund could be highly into equity invested
06:13 and therefore lesser into debt, just for example,
06:15 and could on the reverse,
06:17 when the markets were to give a different indication,
06:19 could be heavily invested on the debt
06:21 and be lesser on equity.
06:23 So now this is being actively managed.
06:25 So that's where a dynamic asset allocation
06:27 or a balanced advantage fund operates.
06:30 How does it help an investor?
06:32 Which was your question.
06:33 How it helps your investor is that
06:36 when markets are going through certain volatility
06:39 or are moving in a certain measure or in a certain band,
06:43 the fund manager is able to take the call
06:45 of moving out of debt or moving into equity
06:48 or into arbitrage,
06:49 or if there is something else also allowed,
06:52 so dynamically manage it.
06:53 So if markets were to, let's say being,
06:56 markets were supposed to be, let's say,
06:57 being overvalued by some metric,
07:00 then probably you can reduce the equity allocation
07:02 in this fund and increase on debt,
07:04 which are when markets look choppy
07:06 or when probably people would not be investing in,
07:09 maybe the fund manager then increases the equity allocation.
07:12 So this number has been dynamically managed.
07:14 What it helps the investor is,
07:16 they are able to get a certain amount of participation
07:19 on the equity side,
07:21 but during the volatile times
07:23 if the fund managers were taking some strategies
07:25 and reducing their equity positions,
07:27 they are also getting an experience of lesser volatility.
07:30 So by actively managing it,
07:32 you are having a strategy which moves as per the times
07:36 or the way markets are behaving.
07:38 Sometimes investors would like to do it themselves,
07:41 but if they are,
07:42 but there are some times when the fund is also able to do it
07:45 and if you like that strategy, you can then invest.
07:48 - So actually, honestly,
07:50 Mayuk, that's exactly what,
07:51 when we read about the dynamic asset allocation fund,
07:55 one of the things which everybody talks about
07:57 is how it can also help investors
07:59 combat behavioral biases,
08:03 because a lot of these actions in terms of buy low, sell high
08:06 or stay invested in volatile times,
08:08 at individual investor level becomes very challenging.
08:12 So from that perspective,
08:14 I just thought we could probably discuss a little bit
08:17 about how exactly the dynamic movement
08:22 or the switch between equity and debt happens.
08:25 Maybe a little bit about trigger points,
08:28 just to highlight that the emotional
08:32 and the behavioral biases can be proactively managed
08:35 through this fund.
08:37 - Sure.
08:38 So what was earlier known as greed and fear
08:42 has now become greed, fear, hope and ignorance.
08:45 So that's how it has got extended.
08:47 But your point is absolutely valid.
08:51 So at many times the behavioral biases
08:53 or over allocation, under allocation
08:56 comes in with greed and fear as markets operate
08:59 and there is nothing unnatural about it.
09:02 It's very much possible.
09:03 So how does a balanced advantage fund tries to achieve that?
09:07 Is buying able to do the exact thing,
09:10 which probably some individuals are unable to do
09:13 because they have other things to do
09:15 and the fund should be able to do this allocation
09:17 on their own, which is buy when markets are low,
09:20 increase the allocation with the stated objective
09:24 that there is an end point also
09:26 that when markets look to be high,
09:28 probably reduce some of that position on the equity side
09:32 and bringing back to equity.
09:33 So what you are trying to do is that
09:34 eventually when markets were to go down,
09:37 your equity exposure is lesser.
09:38 So therefore your experience becomes slightly
09:40 not as extreme as it would have been
09:43 if you were more tilted on the equity side.
09:46 Now, individuals doing it for each of the schemes
09:49 and then moving and others comes at a cost.
09:53 First, your call has to be right.
09:55 You have to go through a process of exiting
09:59 and then probably buying, the timing should be right.
10:02 There is a tax angle to it when you move out of a fund
10:05 or an asset class come back and so on.
10:06 So there are many other things which
10:08 and whether you are actually able to do it.
10:12 So all of these do not make it easier for the investor
10:17 and therefore there is this behavioral angle
10:20 which comes into it.
10:21 A fund when it is following a certain rules
10:24 or some investment objectives is able to probably do it
10:28 because it is doing it as a fund
10:30 and it is doing for everybody.
10:31 So the fund is behaving in that manner,
10:33 which is by buying low and selling high
10:37 and then taking the calls in between during this process.
10:40 So what you are exactly doing is
10:43 what possibly could have been done individually,
10:46 easier said doesn't happen so much.
10:47 We are all busy and have other objectives in life.
10:50 So then the fund is probably trying to do
10:52 some of that objective on.
10:54 So that is where this comes in.
10:56 The trigger points, as you said, could be anything.
10:58 It could be market valuations.
11:00 It could be any of the metrics which you see daily
11:05 to measure whether markets are looking good, bad
11:08 or whichever, but that's an opinion.
11:10 So overall, there are many other ways
11:12 by which many funds use certain metrics.
11:15 They have their own models to say
11:18 which by which they come to a conclusion
11:20 that whether they should be buying more or reducing
11:22 or just staying where they are on their allocations
11:25 to different asset classes.
11:28 - So then I would just say that
11:30 from an investor's perspective,
11:32 it's also very important to understand
11:36 this particular strategy that is being,
11:39 the dynamic movement, the asset allocation strategy
11:42 versus that is being followed by the fund.
11:44 It's important to focus on that a little bit,
11:46 that how is this switch happening?
11:47 Because like you said, every fund does it differently
11:49 or can do it differently.
11:51 - Yes, so difficult question
11:54 because from an investor's point of view,
11:57 to be able to delve into each schemes model,
12:01 understand the metrics
12:05 and then see which metric suits them better
12:08 is slightly difficult.
12:09 And I agree with you,
12:10 it becomes difficult to be able to do that.
12:13 So therefore a way to compare funds
12:16 or to find which one is better,
12:17 I think it is always good to go back to the basics,
12:20 which is to see that has the fund,
12:23 whatever model it has used,
12:25 is the user experience in line with what my objectives are.
12:29 Only looking at returns or point to point
12:32 is possibly not the only way of doing it,
12:34 that is also a part of the decision making,
12:37 but to look at it, it becomes slightly difficult, I agree,
12:39 because there are models,
12:40 everybody is trying to basically have the same objective,
12:43 but their paths are different
12:45 because each schemes model is different,
12:47 but that is one of the ways of looking at it.
12:50 - That is very helpful.
12:52 That is very helpful, Mayur, what you just said.
12:55 I think for this category,
12:58 I think largely also with any mutual fund investment,
13:01 just to understand whether the fund
13:03 is remaining true to mandate
13:04 and delivering is not just in terms of return,
13:08 but like the stated objective,
13:10 that is something that investors can easily look at
13:13 and must look at, right?
13:15 So that is very helpful.
13:17 So I just have one very overarching question for you now.
13:21 One, just a little bit just to educate our viewers,
13:25 the importance of, of course, asset allocation per se
13:28 in the larger investment financial planning journey.
13:31 And of course, can we assume that the asset allocation fund,
13:34 this dynamic asset allocation fund
13:36 can serve as a one-stop solution for investors?
13:40 - I wish it was that easier,
13:43 but it doesn't work in that manner would be our opinion,
13:49 and I'll illustrate why.
13:51 An asset allocation is a subdivision of something
13:56 which is your investment goals.
13:58 So I would, as an individual,
14:00 have different investment goals.
14:02 Some could be for the next month,
14:03 some could be after six months, a year or three years,
14:06 and some could be long-term, five years, 10 years,
14:08 eventually a retirement as an individual's goals.
14:11 So each plan will have a different subset of,
14:15 each requirement will have a plan
14:17 and each plan should have an asset allocation.
14:20 To say that one asset allocation fund
14:23 will be able to overarch all the requirements,
14:26 which are probably for next week till up to 30 years down,
14:29 is a little too much
14:31 because there are many variables which are at play.
14:33 Very simple, if I need a money
14:34 after probably two months also, I don't think so.
14:37 And if I have to keep that money away,
14:40 then my plan should be such
14:41 that it has easily access to that money.
14:43 It cannot be a growth asset.
14:44 It would be somewhere which is a parking lot product,
14:47 just to give it in a perspective.
14:49 But if there is something which is beyond five, 10 years,
14:52 probably it will have a mix of assets.
14:54 So that the asset allocation is actually working there
14:56 because all parts will lead to that goal investments.
15:01 So what does such a dynamic asset allocation product gives?
15:06 See, the fund is doing dynamic asset allocation.
15:08 What you are getting as an investor is a participation rate.
15:13 So your fund could be 15% in equity,
15:16 it could be 30%, it could be 30% debt, 40% equity.
15:19 So what you are getting is a participation number.
15:23 Your as a scheme per se doing asset allocation
15:26 for thousands of investors is slightly difficult
15:29 because different investors have different requirements.
15:33 So your plan is unique to yourself.
15:35 So your requirement demands a plan
15:38 and your plan therefore is divided into asset allocation.
15:42 And as I said, different goals, different plans,
15:44 so different asset allocation.
15:46 So how can one scheme do it for everybody?
15:49 What the scheme therefore gives is gives you a middle path
15:52 that for a certain amount of participation on equity,
15:55 downside and upside, as I mentioned,
15:57 you will be able to address some of the goals.
16:00 But a scheme doing asset allocation
16:02 for everybody doesn't work.
16:04 But what this category does
16:07 is possibly gives you a middle path
16:09 that you are getting a downside protection,
16:11 you're getting an upside participation.
16:14 Therefore, it is in a certain bandwidth.
16:16 That bandwidth can address some goals
16:18 which could be long-term also and short-term.
16:21 But it will replace every other goal,
16:24 every other asset allocation
16:26 and it will override everything.
16:28 It's debatable to say that only one scheme
16:31 will address all problems.
16:33 What it gives you a certain participation rate.
16:35 Is that participation rate enough to reach your goals?
16:37 You can then work it out accordingly.
16:41 - Perfect, perfect.
16:42 Thank you.
16:43 Thank you for distilling that
16:43 because sometimes the name suggests
16:46 and because our viewers would also like to know
16:50 that just because the name suggests,
16:52 like you very clearly said,
16:53 it doesn't necessarily mean
16:54 that it will act as a one-stop destination
16:57 simply because different investors
17:00 have different goals, timelines and profiles.
17:03 And of course, for the single investor as well,
17:05 over a period of time, it changes,
17:07 which actually, as we close this,
17:09 brings us back to our initial thought process
17:11 that asset allocation should be dynamic in nature,
17:14 not static in nature.
17:16 And thus over a period of time, it should keep changing.
17:18 So thank you, Mayuk.
17:20 I think with this, we come to the end of today's episode
17:24 of "Investment Made Easy"
17:26 on dynamic asset allocation
17:27 spearheaded by Mirai Asset Visual Fund.
17:31 Thank you, Mr. Dutta, so much for joining us today.
17:35 - Thank you, Deepika.
17:36 It's a pleasure.
17:36 Thank you to you and your team.
17:38 - Likewise, likewise.
17:39 Thank you, thank you.
17:40 - And viewers, we hope you have enjoyed
17:43 our conversation today.
17:46 Please don't forget to share your comments
17:48 and feedback on this episode.
17:49 And you can also share your suggestions and questions
17:52 at editor@outlookmoney.com.
17:55 And we'll be back with our next edition soon.
17:57 Till then, stay safe, stay invested
18:00 and keep following "Outlook Money,"
18:02 your favorite personal finance magazine.
18:04 Thank you very much.
18:06 - Thank you.
18:07 - Mutual fund investments are subject to market risks.
18:10 Read all scheme related documents carefully.
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