NFO Update: Mahindra Manulife Focused Equity Yojana

Mahindra Manulife Mutual Fund is one of the youngest fund houses in India with quarterly average assets under management (QAAUM) of Rs 5,036.05 crore at the end of September 2020. The fund house, which is a joint venture of Mahindra & Mahindra Financial Services & Manulife Investment Management (Singapore) Pte, has announced the launch of its newly open-ended equity scheme, Mahindra Manulife Focused Equity Yojana. The new fund offer opens for subscription on October 26, 2020, and closes on November 09, 2020. The scheme reopens for ongoing subscription and redemption within five business days from the date of allotment. This fund falls under the Focused Fund category as per SEBI.  

Objective: The investment objective of the scheme is to generate long-term capital appreciation by investing in a concentrated portfolio of equity & equity-related instruments of a maximum of 30 companies across market capitalisation.

Strategy: The fund manager will follow an active management style. The scheme will focus on creating an appropriately diversified portfolio of companies with a long-term perspective. The scheme will follow a top-down approach to select sectors and follow a bottom-up approach to pick stocks across the sectors based on the quality of the business model and quality of management. Quality of business model and quality of management will be assessed by evaluating past track record and future outlook. The selection of companies will be guided by a combination of one or more factors like profitable growth in good or bad cycles, optimum utilisation of capital and capacity, the leadership shown in the industry in which they operate; and track record of consistent & long-term execution potential.

The scheme, by utilising a holistic risk management strategy, will endeavour to manage risks associated with investing in equity markets. The scheme has identified the following risks and design risk management strategies, which are embedded in the investment process to manage these risks:

1. Quality risk – the risk of investing in unsustainable/weak companies

2. Price risk - the risk of overpaying for a company

3. Liquidity risk- high impact cost of entry and exit

4. Volatility risk –volatility in price due to company or portfolio specific factors

5. Event risk - price risk due to a company/sector-specific or market event

Fund Manager: The scheme will be together managed by Krishna Sanghavi, Chief Investment Officer-Equity at Mahindra Manulife Investment Management. The performance of the scheme will be benchmarked against NSE 500 TRI Index.

Our view: Focused funds by regulation need to invest in a limited number of stocks and the maximum allowed number is 30 stocks. Due to the limited number of stocks to invest in, they are riskier as they cannot be diversified after a certain point of time. Nonetheless, if the focussed strategy worked, then it will generate better returns than a diversified fund. Therefore, we believe that you should go for a fund with a consistent track record.