Tata Mutual Fund Launches Business Cycle Fund – NFO Review
Tata Mutual Fund has launched Business Cycle Fund NFO which is opened for subscription now. This is an open-ended equity scheme that focuses on riding business Cycle through dynamic allocation between various sectors and stocks at different stages of business Cycle. Should you invest in Tata Business Cycle Fund? What are the various risk factors associated with such funds? Let me provide complete review and analysis in this article.
What is Business Cycles Investing?
Each phase in the business cycle presents unique investment opportunities. Hence incorporating the business cycle’s theme into investments can help to make most out of current economic environment.
If we consider phase of recovery and expansion, investments that are more sensitive to faster economic growth and business activity are likely to outperform. These are called cyclical stocks. These include Younger, growth-oriented firms and industries and stocks of midsize and small companies, as well as emerging market equities. Hence in the recent past we have been recommending the investors to invest in midcap mutual funds and small cap mutual funds which can outperform for the next couple of years.
Similarly, during a phase of slowdown and recession, defensive investments and which are interest rate sensitive have greater potential to outperform. There are generally referred to as defensive stocks. Such stocks include stocks of larger and stable companies and businesses that experience steady consumer demand even during economic slowdowns.
Tata Business Cycle Fund [NFO] Issue and Scheme Details
Name of the Scheme: Tata Business Cycle Fund
NFO Period: This fund has opened for subscription now and closes on Thursday 30th July 2021. Since it is an open-ended scheme, it reopens for further subscription from 11th August 2021.
Where does the scheme invest: This is open-ended equity scheme following business cycles-based investing theme.
Plans available: It has both Tata Business Cycle Fund – Regular Plan and Tata Business Cycle Fund – Direct Plan. Further like any other fund, it provides Growth, Payout of Income Distribution cum capital withdrawal (IDCW) & Reinvestment of Income Distribution cum capital withdrawal (IDCW)
Minimum Application Amount: Rs 5,000 and in multiples of Rs 1 there-of.
Load Structure: Entry Load is nil and Exit Load would be 1% if the redemption amount exceeds 12% of total investment within 1 year.
Fund Manager: Mr.Rahul Singh
Benchmark Index: Nifty 500 TRI
Max Total Expense Ratio: 2.25%
What is the investment objective of this MF scheme?
To generate long-term capital appreciation by investing with focus on riding business cycles through allocation between sectors and stocks at different stages of business cycles.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this mutual fund?
This fund investment pattern is as follows:
1) Equity – This fund invests in equity and equity related instruments selected basis of business cycle – 80% to 100% – The risk profile is high risk.
2) Other equity – This fund invests in other equity and related instruments – 0% to 20% – The risk profile is medium to high risk.
3) Debt and Gold: This fund invests in debt and money market instruments & Gold ETF – 0% to 20% – The risk profile is low to medium.
4) REITs and InvITs: This fund invests in the units of REITs and InvITs – 0% to 10% – The risk profile is medium to high.
5) Overseas investments: This fund can invest up to 20% in overseas securities.
Why to invest in the Tata Business Cycle Fund?
Here are a few reasons to invest in such mutual fund schemes.
1) The mutual fund invests in opportunities that arises during different stages of business Cycle in the Indian economy. These are unique opportunities where such mutual funds can benefit.
2) In the recent past we are seeing the business cycles getting shortened. This can provide numerous opportunities.
Some key risk factors you should consider before you invest in such funds
One should consider some of these risk factors / negative factors before investing.
1) It invests in opportunities arising out of various stages in business Cycle. This would limit the capability of the fund to invest in other themes / sectors.
2) It invests based on opportunities arising out of various stages of business Cycle that could be high in one period and lower in another period. Though we have seen the shorter business cycles in the recent past, the returns could highly fluctuate.
3) Since this scheme invests in specific opportunities for companies in special situations, concentration risk is extremely high.
4) It invests in REITs and InvITs which are considered as high risk.
5) You can refer complete risk factors by going through the scheme related documents.
Performance of existing Business Cycle Funds
Currently there is only one fund in this theme which is L&T Business cycles fund. Here is the performance
1 Year return 64%
3-year annualized returns – 11%
5-year annualized returns – 11%
You may like: Which mutual funds outperformed in the last 15 years?
Tata Business Cycle Fund – Should you invest?
Tata Business Cycle Fund invests based on a business cycle’s theme. Such opportunities could be high in one period (e.g., post covid-19) and limited number of opportunities in another period. The returns can fluctuate year on year. This is not that exciting theme. High risk investors who still want to test with such themes can invest for at least 5 years’ time frame. Moderate to low risk takers should stay away from such funds.
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