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  • MF News ‘L&T Balanced Advantage could help investors participate in equity growth story with low volatility’

    ‘L&T Balanced Advantage could help investors participate in equity growth story with low volatility’

    Ankur Thakore, Chief Distribution Officer, L&T Mutual Fund and Soumendra Nath Lahiri, Chief Investment Officer, L&T Mutual Fund talk about L&T Balanced Advantage Fund.
    L&T MF Feature Sep 3, 2019

    What is the rationale for change in name of L&T Dynamic Equity Fund to L&T Balanced Advantage Fund?
     
    SN Lahiri: As per the new category introduced by Sebi at the time of recategorization in October 2017, Sebi defined a balanced advantage fund as ‘an open-ended dynamic asset allocation fund’. Therefore, we decided to change the name which resonates the category which would enable investors to compare the funds in terms of asset allocation and investing strategy.   
     
    What are the fundamental changes to the scheme after the name change?
     
    SN Lahiri:
      The L&T Balanced Advantage Fund would continue to dynamically manage equity allocation based on valuation levels. Also the equity selection will remain as bottom-up approach for us. In that respect the fund has not changed. What has changed is the logic of the equity exposure levels. Earlier we were following a tablebased on Price-to-Earnings (PE), whereas now, we are following a model that has trailing PE, forward PE, trailing Price-to-book value (PB) & forward PB. We believe the fund could help investors participate in the long-term growth potential of equities but with much lower short-term volatility.

    Why should advisors recommend this scheme to their clients? Which category of clients should look at investing in this fund?
     
    Ankur Thakore:
    India has a large savings pool where bulk of the money is invested in lower yielding but "guaranteed return" products. We all know most of these products give very low real returns. L&T Balance Advantage Fund is predominantly trying to get the wallet share of investors with relatively low risk appetite, looking to benefit from long term potential of equities, which is a marginal step up for the bulk of the savers in India. Cautious investors fearful of high volatility could consider investing in funds which dynamically manage equity allocation based on valuation level – i.e. increase equity exposure when markets are cheap and reduce equity exposure when markets are expensive.
     
    The uniqueness of the balanced advantage fund lies in the dynamic allocation between equity and fixed income, depending on prevailing market conditions. Given the greater flexibility, balanced advantage can make a larger portion of the journey of the customer in the equity market smoother as compared to equity funds. Thus, the category would suit a wide spectrum of investors and can be the core allocation for all customers.  
     
    How do you plan to make this scheme popular among advisors?
     
    Ankur Thakore:
    As informed advisors, most of them do follow an asset allocation approach for their clients based on their risk appetite. This product is an alternative for them, as it has an "automated" asset allocation model wherein, the re-balancing happens on a regular basis and it does so in a tax efficient manner.  Engaging through various communication platforms on a constant basis with the advisors to get the desired mind share is a work in progress. We do believe that over a cycle this product should add value to the customer which can be demonstrated by past data, which is what we are presenting to the advisor to get a by-in.
     
    How is this fund different from the existing balanced advantage funds in the market?
     
    SN Lahiri:
    All balanced advantage funds dynamically manage the equity and debt part of the corpus based on the market conditions.  Among the metrics that may be considered for deciding the debt-equity mix at any point of time will be the interest rate cycle, equity valuations (P/E, P/BV, Dividend Yield, Earnings yield, market cap to GDP ratio etc.), medium to long term outlook of the asset class, etc.  
     
    The product helps in keeping asset allocation decisions free from emotions (greed and fear) where the portfolio is actively managed to deliver alpha through stock selection.  The scheme aims to reduce volatility substantially and yet help investors participate in long term growth potential of equities. It does not aim to outperform pure equity strategies.
     
    In your view, how can distributors grow their business in an all-trail commission era?
     
    Ankur Thakore:
    The financialisation of assets is a reality and this will definitely accelerate over a course of time. Today if we have to look at the mutual fund penetration of households, it is about 7% which will surely increase over period of time. These new customers will need advice and for this we would need distributors who can engage with them and get them the right perspective.  
     
    If today mutual fund accounts only for 6% of gross financial savings of households and savings deposit and bank deposits at 40% of the financial savings, this money over of period of time will move to mutual fund and reflects the large headroom we have. With the mainstream and digital campaigns done by the mutual fund industry, today mutual fund is accepted well with the Millennial as well, who will be accounting for larger contributions over period of time and hence, the future investors do have a positive affinity to this asset class.  
     
    Surely the revenues are coming down as basis points of the AUM we manage, but the opportunity is multi-fold to grow the AUM and hence, over a period of time the
    revenues in absolute value will grow significantly. Each one needs to get their audience and the value proposition right to get the desired scale. The way of acquisition may change in some cases but overall we do not see a dramatic shift in the business models.   
     
    Keeping all of the above in terms of opportunity, we don't see reasons why people should not be attracted to distributing mutual fund and the onus lies on us as manufacturers to demonstrate the long term potential in this business and the benefit of the product to the customer. Surely there are competing products which give far higher commissions from short term basis, but those who will understand the long terms benefits will surely be looking at it positively and will be attracted in building their business.
     
    How do you plan to deepen your engagement with distributors?
     
    Ankur Thakore:
    Our brand is created by superior fund performance, distributor engagement and good customer service. Distributors are the face of this industry. So we will continue to engage with distributors as a means to build our brand with investors. In addition to educating them through several training sessions about the subtleties and benefits of investing in mutual funds, we are also focusing on several digital initiatives and are creating content which caters to different target audiences.  
     
    Going forward, we would be working on enhancing our digital initiatives to get the communication through to the distributor faster and accessible at any point in time.  Each distributor today wants to demonstrate their value addition to the customers and part of our effort will be to help them demonstrate that value and this we believe will help us engage better with them.

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    1 Comment
    arun Kumar Kateel · 4 years ago `
    Information on SIP returns( > 5 Years) was really informative & its a good news for people who are in a big way into sips. This little piece of info had made my decision of investing in them still stronger & hopefully will serve my goal in the long run.
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