Baroda Business Cycle Fund – NFO Review

Baroda Business Cycle Fund – NFO Review

Baroda Business Cycle Fund – NFO ReviewBaroda Business Cycle Fund NFO Review

Baroda Mutual Fund has launched Business Cycle Fund NFO which would open for subscription on 24th August 2021. This is an open-ended equity scheme. It focuses on riding business cycle through dynamic allocation between various sectors and stocks at different stages of business cycle. Should you invest in Baroda Business Cycle Fund NFO? What are the various risk factors associated with such mutual funds? Let me provide complete review and analysis in this article.

Also Read: Best Flexicap Funds to invest in 2021

What is Business Cycles Investing?

You can skip this section if you are already aware of business cycle theme.

Business cycle has the following phases.

1) Expansion: Strong demand, Capacity utilization above normal, Output growth strong, corporate profitability very strong, Strong tax revenues, Risk aversion very low

2) Recession: Demand growth starts to slow down, Capacity utilization starts to fall, Output growth starts trending lower, tax revenues moderating, risk aversion starts to increase.

3) Slump: Demand growth below normal, Capacity utilization much below normal, Risk aversion very high

4) Recovery: Demand growth starts to pick up, credit growth starts to improve, Tax revenues start to pick up

It has been observed that over a period, stock returns are largely driven by cyclical factors tied to Macro economic factors and hence corporate earnings. The business cycle can therefore be a critical determinant of equity market returns and the performance of equity sectors.

Baroda Business Cycle Fund – NFO Issue Details

Scheme Opens 24-Aug-21
Scheme Closes 06-Sep-21
Scheme reopens for continuous purchase/sale Within 5 working days
Minimum Lumpsum Rs 5,000
Minimum SIP Rs 500 for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Beyond 10% of units within 1 year – 1%
Otherwise – Nil
Risk Very High Risk
Benchmark BSE 500 TRI

Baroda Business Cycle Fund SID

What is the investment objective of this MF scheme?

The investment objective of the Scheme is to generate long term capital appreciation for investors by investing predominantly in equity and equity related securities with a focus on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles in the economy.

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:

Type of instruments Min % Max % Risk Profile
Equity and equity related instruments
selected on the basis of business cycles
80% 100% High
Other equity and equity related
instruments
0% 20% Medium to High
Overseas equity and equity related
instruments, including ADR, GDR,
or any other type of securities
0% 20% High
Units issued by REITs and InvITs 0% 10% Medium to High
Debt and Money Market Securities 0% 20% Low to Medium

Why to invest in the Baroda 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 overseas equity to the tune of 20% which are high risk along with geo-political risk, forex conversion risk etc.,

5) It invests in REITs and InvITs which are considered as high risk.

6) You can refer complete risk factors by going through the scheme related documents.

Performance of existing Business Cycle Funds

Currently there are two funds with more than 6 months performance in this segment. Here are the performance details.

L&T Business Cycles Fund: This fund generated 12%, 56%, 11.4% and 11.3% returns in the last 6 months, 1 year, 3 years and 5 years respectively.

ICICI Pru Business Cycles Fund: This fund generated 10% returns in the last 6 months and 19% since Jan-2021 (inception).

You may like: HDFC Green and Sustainable Fixed Deposits offer 6.55% interest

Baroda Business Cycle Fund – Should you invest in this NFO?

Baroda Business Cycle Fund invests based on a business cycle’s investment 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. As indicated in our earlier articles, 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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Suresh KP

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