NFO Analysis: ITI Balanced Advantage Fund

ITI AMC (Asset Management Company) is relatively new in this space who had launched its first fund in April 2019. They started off with launching their liquid fund followed by a multi-cap fund that was launch in May 2019. They went further and launched four different funds viz. arbitrage fund, ELSS (Equity-Linked Saving Scheme), overnight fund and right now came up with and NFO (New Fund Offer) for dynamic asset allocation fund which is named as ITI Balanced Advantage Fund. ITI Balanced Advantage Fund is an open-ended dynamic asset allocation fund and is open for subscription up to December 23, 2019. The scheme would reopen for continuous sale and repurchase on or before January 06, 2020.

Objective:
The investment objective of this scheme is to seek capital appreciation by investing in equity and equity related securities and fixed income instruments. To provide investors with long term capital appreciation, the allocation between equity instruments and fixed income securities will be managed dynamically. Said that, there is no assurance that the investment objective of the scheme will always be realized.

Asset Allocation:

Benchmark:
The performance of the Scheme will be benchmarked against CRISIL Hybrid 50+50 - Moderate Index. However, most of the schemes in this category are benchmarked against CRISIL Hybrid 35+65 - Aggressive Index. Said that, there are only 3 schemes out of 20 which have the same benchmark index as ITI Balanced Advantage Fund. So, they would be the true peers. The trailing returns over 5 years of CRISIL Hybrid 50+50 - Moderate Index is 9.13 per cent whereas that of CRISIL Hybrid 35+65 - Aggressive Index is 9.28 per cent. Said that, the category average 10-year trailing returns stands at 10.19 per cent.

Investment Strategy:
The fund is designed to dynamically change its allocation across equity, cash, debt and derivatives based on the prevailing market conditions. When market valuations are attractive, the Fund Manager is expected to increase the exposure to equity and when equity markets get expensive or experience volatility, he will prune down the equity exposure by increasing cash or debt exposure or by hedging.

The AMC is said to have its proprietary in-house quantitative approach that looks at equity markets across three parameters viz. momentum, volatility and valuations to guide the decision with respect to asset allocation. The allocation to debt is supposed to be the residual number that is arrived at after deciding the equity allocation. The fund is expected to review the asset allocation on an ongoing basis and would be dynamically linked to movements in market variables.

Fund Manager:
This scheme will be co-managed by Mr. George Heber Joseph & Mr. Pradeep Gokhale. Prior to associating with ITI AMC, Mr. George Heber Joseph was associated with the Fund Management Team of ICICI Prudential AMC from 2008 to 2018. While in that period he managed funds like ICICI Prudential Multicap Fund, ICICI Prudential Long Term Equity Fund – Tax Saving, ICICI Prudential Child Care Gift Plan and also some of the closed ended funds as well. If we look at the performance of the said funds in the period, he was associated with ICICI prudential AMC then ICICI Prudential multi-cap fund gave 7.83 per cent, ICICI Prudential Long Term Equity Fund (Tax Saving) gave 9.58 per cent and ICICI Prudential Child Care Fund gave 6.31 per cent of returns. This fund would also be co-managed by Mr. Pradeep Gokhale who prior to joining ITI AMC was associated with Tata AMC from 2004 to 2018. While he was associated with Tata AMC, he managed funds like Tata Large Cap fund, Tata Large and Midcap fund, Tata India Offshore Opportunities Fund and Tata Ethical fund. If we look at the performance of these funds during his tenure with Tata AMC then Tata Large Cap fund gave 16.32 per cent, Tata Large and Midcap fund gave 16.48 per cent and Tata Ethical fund gave 16.84 per cent returns.

Our Recommendation:
No doubt that both the fund managers are capable and have extensive experience in managing equity mutual fund. Even the balanced advantage fund as a category is said to have funds that will dynamically manage the allocation between equity and debt. However, ITI mutual fund is relatively a new fund house. So, it is always better to take stance of wait and watch.

We believe that you should invest in a fund which has at least been through two market cycles. Also, before investing in any fund you should check if it suits you in terms of your risk appetite and returns requirement. For someone being moderate risk taker, balanced advantage funds are suited for achieving medium to long-term financial goals which are 5 to 7 years from Today.