NFO analysis: TATA Business Cycle Fund

Sectoral/thematic funds invest in companies across various sectors of the economy such as technology, healthcare, banking & finance, chemical, etc. In line with this, Tata Mutual Fund has come up with the theme of the business cycle.  

Now, the question arises, what is a business cycle fund? A business cycle takes place due to economic changes. The economy undergoes a series of phases such as expansion, slowdown, depression, and recovery. Business cycle mutual fund invests in companies across various sectors by taking the advantage of the changing economy. These types of funds identify the trend in the economy and invest in stocks, which will prospectively outperform. Tata Business Cycle Fund has come up with NFO of sectoral/thematic fund. Let’s have a look:  

Subscription dates: It will launch on July 16 and end on July 30, 2021.  

Objective: It is an open-ended equity scheme investing with a focus on business cycles through allocation between sectors and stocks at different phases of the business cycle. The objective of the fund is to create long-term capital appreciation.  

Strategy: The scheme would invest in the sector and stocks by identifying the business cycle and trends that are likely to outperform. Fund managers will consider economic parameters, investment indicators, business and consumer sentiments to decide the expansion or contraction phase of the economy. During expansion, fund managers would invest in the stocks of the cyclical sector whereas, during the contraction phase, fund managers would invest in stocks of the defensive sector, which is not prone to changes to the overall economic activities. Fund managers will use top-down as well as bottom-up investment approaches in order to select sectors and companies respectively that offer the best value relative to their respective long-term growth prospects, returns on capital and management quality. Fund managers would invest at least 80 per cent of the portfolio as per business cycle themes and other equities, debt instruments, Gold ETF, real estate investment trust (REITs) & infrastructure investment trust (InvITs).   

Fund manager: The fund will be together managed by Rahul Singh-Chief Investment Officer-Equities, Venkat Samala-Research Analyst (Overseas Investment) and Murthy Nagarajan-Head-Fixed Income (Debt Portfolio).  

Who should consider investing in these funds?  

• Investors seeking a diversified portfolio across the various sectors of the economy and want to receive optimal returns from economic changes.

• Investors having a longer investment horizon should consider investing in these funds.   

• The risk level of this fund is very high. So, investors should assess their risk appetite before considering this fund.  

To conclude, the business cycle is quite a new theme offered by mutual funds and there are only a bunch of mutual funds that offer this theme. It might be risky to invest in this fund or any other fund offering this theme as sufficient historical data is not available. Nevertheless, if investors want to invest in this scheme, then NFO might not be the best option to invest in. Instead, they can consider investing in the funds that are already available in the market for at least 1-2 years.