Aditya Birla Sun Life Launches Business Cycle Fund – NFO Details and Review
Aditya Birla Sun Life has launched Business Cycle Fund NFO which would open for subscription on 15th November, 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 in the economy. Should you invest in Aditya Birla Sun Life Business Cycle Fund NFO? What are the various risk factors associated with such funds? Let me provide complete review and analysis about this NFO in this article.
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.
Aditya Birla Sun Life Business Cycle Fund – NFO Issue Details
|Scheme reopens for continuous purchase/sale||Within 5 working days|
|Minimum Lumpsum||Rs 500|
|Minimum SIP||Rs 100 for 6 months|
|NAV of the fund||Rs 10 during NFO period|
|Exit Load||1% if reedeemed within 1 year|
|Risk||Very High Risk|
|Benchmark||S&P BSE 500 TRI|
|Fund Manager||Mr. Vineet Maloo and Mr. Nitesh Jain|
What is the investment objective of this MF scheme?
The investment objective of the scheme is to provide long term capital appreciation 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 & Equity related instruments selected on the basis of business cycle||80%||100%||High|
|Other Equity & Equity related instruments||0%||20%||High|
|Debt and Money Market instruments||0%||20%||Low to Medium|
|Units issued by REITs and InvITs||0%||10%||Medium to High|
Why to invest in the Aditya Birla Sun Life 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 of companies in special situations, concentration risk is extremely high.
4) It invests up to 20% in foreign securities which have geo-political risk and currency risk.
5) It invests in REITs and InvITs which are considered as high risk.
6) It invests some portfolio in debt instruments which have turned to be risky these days.
7) 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 26%, 61%, 21% and 12% annualized returns in the last 6 months, 1 year, 3 years and 5 years respectively.
ICICI Pru Business Cycles Fund: This fund generated 27% returns in the last 6 months and 25% since Jan-2021 (inception).
Aditya Birla Sun Life Business Cycle Fund – Should you avoid this NFO?
Aditya Birla Sun Life 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. Otherwise, one should avoid such schemes.
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