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Kotak Balanced Advantage Fund: Advantageous For Your Portfolio?
Jul 19, 2018

An open-ended dynamic asset allocation fund.

Scheme Details of Kotak Balanced Advantage Fund

TypeAn open-ended dynamic asset allocation fund Benchmark IndexNifty 50 Hybrid composite debt 50:50 Index
Min. InvestmentLump sum - Rs 5,000 and in multiples of Rs 1 thereafter

Additional purchase - Rs 1,000 and multiples of Rs 1 thereafter

Systematic Investment Plan - Rs 1000 and in multiples of Rs 1 thereafter (subject to minimum 6 instalments)
  • Regular
  • Direct
  • Growth*
  • Dividend
    • Pay-out
    • Re-investment*
*default option
Min. RedemptionRs 1,000/- or 100 unitsFace ValueRs 10 per unit
Entry LoadNilExit LoadFor redemption/switch out of upto 10% of the initial investment amount (limit) purchased or switched in within 1 year from the date of allotment: Nil.

If units redeemed or switched out are in excess of the limit within 1 year from the date of allotment: 1%.

If units are redeemed or switched out on or after 1 year from the date of allotment: Nil.
Issue Opens13-July-18Issue Closes27-July-18

Investment Objective of Kotak Balanced Advantage Fund*

The investment objective of the scheme is to generate capital appreciation by investing in a dynamically balanced portfolio of equity & equity related securities and debt & money market securities.

There is no assurance or guarantee that the investment objective of the scheme will be achieved.

*Source: Scheme Information Document

(Read: What You Should Read In A Scheme Information Document)

Is Kotak Balanced Advantage Fund for you?

Kotak Balanced Advantage Fund (KBAF) being a dynamic asset allocation fund will hold the flexibility to invest across equity, debt and money market instruments.

KBAF may also invest upto 10% of its total asset in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

Further, for the purpose of hedging and portfolio rebalancing, KBAF may invest in derivative instruments (viz. index futures, stock futures, index options, stock Options, warrants, convertible securities, swap agreements, etc.) as permitted by the regulatory guidelines.

This is the only open-ended equity mutual fund by Kotak Mahindra Mutual Fund that has a mandate to dynamically manage between equity and debt.

Hybrid funds provide the benefit of diversification within each asset classes i.e. equity and debt. So, within equity, you benefit from wide diversification across stocks and sectors, while in debt, across fixed instruments and maturity of papers.

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The hybrid nature of the fund allows the fund manager to increase exposure towards debt investments when outlook appears favourable to do so, thereby facilitating mitigating the risk (associated with equities) and rewarding investors with appealing returns.

KBAF is suitable for investors with moderate-to-high risk appetite and an investment time horizon of at least 5 years.

Asset Allocation of Kotak Balanced Advantage Fund

The asset allocation of Kotak Balanced Advantage Fund under normal circumstances will be as under:

InstrumentsIndicative Allocation (% of total assets)Risk Profile High/Medium/Low
Equity & Equity related securities65100High
Equity Derivatives045High
Debt Securities & Money Market instruments035Low to Medium
Units of REITs & INVITs010Medium to High

Note: Although the gross equity exposure would be maintained between 65%-100%, the net equity exposure can be brought down significantly below 65% by hedging through equity derivatives

Further, it is stated in the offer document that:

  • The scheme may use derivatives as permitted by the capital market regulator from time to time
  • The scheme may also use fixed income derivatives instruments subject to guidelines as may
  • be issued by the capital market regulator and RBI from time to time
  • The scheme may invest in securitized debt upto 50% of the debt allocation
  • The scheme will invest upto a maximum of 35% of its net assets in foreign securities
  • The scheme may invest in another scheme of the Kotak Mahindra Mutual Fund or any other
  • Mutual Fund without charging any fees
  • The scheme shall participate in the corporate bond repo transactions
  • The scheme may invest in listed/unlisted equity shares as per the extant SEBI (Mutual Funds) Regulations, 1996

(Source: Scheme Information Document)

Investment Strategy Of Kotak Balanced Advantage Fund

The equity and debt exposure in the portfolio of Kotak Balanced Advantage Fund will be dynamically managed with no restriction on the minimum or maximum exposure to each. It will depend on the fund manager's view of the market.

The extent of equity exposure will be dependent on the following among many others:

  • The fund manager's outlook of the overall economic scenario in the country
  • Global events
  • Market conditions
  • Valuation factors (viz. Price to Earnings (PE), Price to Book Value (P/B), Earnings Yield etc.)
  • Momentum factors
  • Interest rate scenario

And within the equity allocation, the portfolio construction will be based on a thematic approach to bottom-up stock picking using the Business, Management and valuation (BMV) model. The fund manager will evaluate the following aspects among others:

  • The business environment that a company operates in;
  • The capability of the management to execute and scale up the business; and
  • Valuation of the company based on fundamentals like discounted cash flows and PE ratios

As regards the portfolio turnover, there is no specific target with respect to the turnover of the scheme. However, it is expected to be moderate under normal circumstances.

Who will manage Kotak Balanced Advantage Fund

Kotak Balanced Advantage Fund's equity portfolio will be managed by Mr Deepak Gupta and Mr Harish Krishnan; while the debt and money market portion will be managed by Mr Abhishek Bisen. Investments in foreign securities will be managed by Mr Arjun Khanna.

Mr Deepak Gupta has 13 years of experience in the mutual fund industry and 11 years of experience in fund management related areas. He is a Graduate in Commerce, a Chartered Accountant, Cost Accountant and has also cleared the CFA (US, AIMR) - Level III.

Some of the other funds managed by him are Kotak Asset Allocator Fund, Kotak Sensex ETF, Kotak PSU Bank ETF, Kotak Nifty ETF, Kotak Banking ETF along with few other funds.

Mr Harish Krishnan, too, has 13 years of experience, spread over Equity Research and Fund Management. Prior to joining Kotak Mahindra Mutual Fund, he was based out of Singapore and Dubai, managing Kotak's offshore funds. He has also worked at Infosys Technologies Ltd in his earlier stint.

Mr Krishnan has to his credit a Bachelor of Technology (Electronics & Communications) degree from Government Engineering College, Trichur, is a Post Graduate in Management from Indian Institute of Management, Kozhikode and is a Chartered Financial Analyst.

The other funds managed by him are Kotak Infrastructure & Economic Reform Fund, Kotak Bluechip Fund and Kotak India Growth Fund Series 5

Mr Abhishek Bisen has been associated with the company since October 2006. Prior to joining Kotak Mahindra Mutual Fund, he has worked with Securities Trading Corporation Of India Ltd where he was looking at sales and trading of fixed income products apart from doing Portfolio Advisory. His earlier assignments also include 2 years of merchant banking experience with a leading merchant banking firm.

The other funds under his management are Kotak Bond, Kotak Mahindra Gilt Unit Scheme 98, Kotak Debt Hybrid, Kotak Gold Fund, Kotak Global Emerging Market Fund, Kotak Equity Savings Fund, Kotak Equity Hybrid and Kotak Capital Protection Series 1, 2,3 & 4

Mr Arjun Khanna has over 11 years of experience, out of which 10 years have been with Mutual Funds in Equity Research. Prior to joining Kotak Mahindra Mutual Fund, he has been associated with Principal Mutual Funds and Citibank N.A.

Mr Khanna has to his credit a Bachelor of Engineering (Electronics) degree, Masters of Management (Finance) from Jamnalal Bajaj Institute of Management Studies and is a CFA.

The other funds managed by Mr Khanna are Kotak Infrastructure & Economic Reform Fund, Kotak Bluechip Fund, Kotak Equity Hybrid, Kotak Debt Hybrid and a few more.

Fund Outlook for Kotak Balanced Advantage Fund

The launch of Kotak Balanced Advantage Fund comes at a time when the Indian equity market is yet again near its all-time high.

Correspondingly, also at a time where the Indian rupee is vulnerable, oil prices have escalated, India's trade deficit has widened (hit a 5-year high in June 2018 to US$ 16.6 billion), and that potentially can impact retail inflation, India's current account deficit and fiscal deficit adversely. Such a scenario appears challenging even to invest in the Indian debt market, particularly in longer maturity papers.

Nevertheless, the dynamic asset allocation mandate of the fund, comes as a precaution provided the fund manager uses it thoughtfully to construct the investment portfolio, both equity and debt.

The fortune of the Kotak Balanced Advantage Fund will be closely linked to how the fund managers play their strategy while building the portfolio.

[Read: Why You Should Be Careful About Investing In NFOs]

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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