The NFO of the scheme will open for subscription on September 17 and close on October 1.
Fund houses are getting innovative to attract risk averse investors. One good example is Kotak Mutual Fund which is launchinga ‘first of its kind’open ended equity fund called Kotak Equity Savings Fund which is a combination of arbitrage, debt as well as equity.
The NFO of the fund will open for subscription on September 17 and close on October 1.
The scheme aims to generate income by predominantly investing in arbitrage opportunities in the cash and derivative segment of the equity market and enhance returns with a moderate exposure in equity and equity related instruments. Under normal circumstances, the scheme would invest atleast 40% in arbitrage opportunities, up to 35% in debt and money market and up to 25% in unhedged equity.
Though the scheme will invest majority of its portion in arbitrage opportunities, the active allocation in equity market differentiates it from such funds.
Typically, arbitrage funds take advantage of the difference in prices of shares in cash and derivatives market. These funds can deploy their money in short term debt or money market securities when the fund manager does not find any arbitrage opportunities. Simply put, the arbitrage funds primarily use hedging strategies. However, the Kotak Equity Savings Fund has an additional option of deploying the fund in unhedged equity market. In a presentation sent to Cafemutual, the fund house said that it would follow a combination of top down and bottom up approach to pick stocks which have the potential growth at reasonable valuation.
The fund will be treated like equity funds for taxation. “Equity oriented schemes have to invest a minimum 65% in equity instruments. For Kotak Equity Savings Fund to be categorized as an equity fund, atleast 40% of the corpus needs to be deployed in arbitrage trades if directional equity is at 25%. The top 5-7 stocks are likely toaccount for around 40% of the corpus. This means that even if the arbitrage opportunities become concentrated in a few stocks, it’s easy to deploy 40% of the corpus in the top arbitrage stocks. In fact, the roll spreads in the top arbitrage stocks are generally 15-20 bps higher than those in the remainder of an arbitrage portfolio in the industry. So, the arbitrage portion of this fund wouldlikely be in a better position to capture this,” says the fund house.
The scheme will be benchmarked against CRISIL Liquid Fund (75%) and CNX Nifty(25%). The minimum application amount is Rs. 5000. The scheme will charge an exit load of 1% if redeemed within a year. No exit load will be charged thereafter. Deepak Gupta and Abhishek Bisen are the fund managers for the scheme.
