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Axis Growth Opportunities Fund: Can It Help You Grow Wealth? - Outside View by PersonalFN

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Axis Growth Opportunities Fund: Can It Help You Grow Wealth?
Oct 15, 2018

Axis Growth Opportunities Fund (AGOF), an open-ended equity scheme, is a new fund offer from Axis Mutual Fund. The scheme will invest in both Large-cap and Mid-cap stocks.

Large and Mid-Cap Funds operate like Multi-cap Funds but gives the fund managers a reduced flexibility. On the other hand, in case of a Multi-cap fund, the fund manager can choose any exposure to Large-caps, Mid-caps or Small-caps.

While you can aim for diversification through multi-cap funds, as per SEBI's new classification, you now have the option to choose dedicated Large- and Mid-cap Funds that gives you the opportunity to diversify your investment across stocks of large and mid-sized companies.

For a Large and Mid-Cap Fund, the minimum exposure to Large-caps and Mid-caps is 35% each. So, needless to say, the maximum exposure to each is capped at 65%.

Though in the past such a category did not exist, fund houses managed Multi-cap schemes or schemes that were either predominantly Large-cap or predominantly mid-cap funds.

Investments in Large and Mid-cap Funds can help maintain stability with an exposure to Large-caps while keeping a focus on wealth creation with a sizable exposure to Mid-caps.

The asset allocation of AGOF is inclined towards equity & equity related instruments of Large-cap Stocks and Mid-cap Stocks. Therefore, on the risk-reward scale, AGOF would fall between a Large-cap fund and a Mid-cap fund. Although Multi-cap funds fall between Large-cap funds and Mid-cap funds on the risk-reward scale, the managers are free to decide the market-cap allocation, the risk-reward is dependent on the investment strategy they adopt. Hence, you need to choose carefully.

In such volatile markets, where uncertainty is high it is best to diversify your investments across market-caps. AGOF is suitable for investors who have a high-risk appetite and are seeking capital appreciation over the long-term, keeping a time horizon of at least 5 years.

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Table 1: NFO Details
NFO Details of Axis Growth Opportunities Fund:
Type An open-ended Equity Scheme investing in both large- and mid-cap stocks. Category Diversified Equity Fund
Investment Objective To generate long-term capital appreciation by investing in a diversified portfolio of Equity & Equity Related Instruments both in India as well as overseas.

However, there can be no assurance that the investment objective of the Scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans
  • Regular
  • Direct
Options
  • Growth*
  • Dividend

*Default option

Entry Load Nil Exit Load
  • If redeemed / switched-out on or before 12 months from the date of allotment,
    1. For 10% of investments: Nil.
    2. For remaining investments: 1%.
  • If redeemed/switched - out after 12 months from the date of allotment: NIL
Fund Manager Mr Jinesh Gopani and Mr Hitesh Das Benchmark Index S&P BSE 200 Index
Issue Opens 1st October 2018 Issue Closes 15th October 2018
(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the scheme's asset allocation will be as under:

Table 2: AGOF's Asset Allocation
Instruments Indicative allocations
(% of total assets)
Risk Profile
High/Medium/Low
Minimum Maximum
Equity & Equity Related Instruments of Large-Cap Stocks#^ 35% 65% High
Equity & Equity Related Instruments of Mid-Cap Stocks#^ 35% 65% High
Debt and Money Market Instruments*# 0% 30% Low to Medium

^ Includes Foreign Equity & Equity related instruments up to 35% of the net assets of the fund. The market capitalization classification viz large cap/mid cap/small cap of such instruments will be determined based on the range of market capitalization of the list of stocks provided by AMFI, in accordance with methodology prescribed by SEBI.

# including derivatives instruments to the extent of 70% of the Net Assets as permitted by the Regulations from time to time. The Scheme may use derivatives for such purposes as may be permitted by the Regulations, including for the purpose of hedging and portfolio balancing, based on the opportunities available and subject to guidelines issued by SEBI from time to time. The Scheme may also use fixed income derivative instruments subject to the guidelines as may be issued by SEBI and RBI and for such purposes as may be permitted from time to time.

*Investment in Securitized debt (excluding foreign securitized debt), if undertaken, would not exceed 35% of the net assets of the Scheme.

(Source: Scheme Information Document)

Further, it is stated in the SID that the Scheme will adhere to the following limits if it engages in Stock Lending.

  1. Not more than 25% of the net assets of the Scheme can generally be deployed in Stock Lending.
  2. Not more than 5% of the net assets of the Scheme can generally be deployed in Stock Lending to any single counterparty.

What will be the Investment Strategy?

As mentioned earlier, the aim of Axis Growth Opportunities Fund is to generate long-term capital appreciation by investing in a diversified portfolio of Equity & Equity Related Instruments both in India as well as overseas.

The fund managers would not hold any capitalization bias and sector preference but will choose to build a diversified portfolio with a balanced mix of large and mid-cap stocks.

Based on these 3 pillars the equity portfolio will be constructed:

  1. High-quality portfolio
  2. Sustainable growth across market cycles
  3. Low churn

The overall portfolio construction would be a combination of both top-down and bottom-up approach. The top-down approach will be based on macroeconomic analysis and will be used to arrive at the geographical market and sectors/themes, while the bottom-up process will focus on appreciation potential of individual stocks from a fundamental perspective to arrive at the stock selection.

The AMC employs a "Fair Value" based research process to analyse the appreciation potential of each stock in its universe. The universe of stocks is carefully selected to include companies that have a robust business model and enjoy sustainable competitive advantages than its peers.

The investments in foreign securities will be made to capture potential opportunities in equity markets of developed and/or emerging markets across geographies. The investment could also be made in themes/brands/market leaders present in these specific markets that cannot be played through the domestic economy either because these are not present, or the companies are not listed on an exchange in India.

The portfolio will have an absolute return focus. The fund manager will try to generate returns while minimizing the potential for downside. Thus, the Scheme will have the leeway to take a higher allocation to cash in case the fund manager is not able to find appropriate stocks at an acceptable valuation at any time.

By utilising a holistic risk management strategy, the fund manager will endeavour to manage risks. The AGOF has identified the following risks and designed risk management strategies, which are embedded in the investment process to mitigate them.

  1. Quality Risk - Risk of investing in unsustainable/weak companies.
  2. Price Risk - 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

Who will manage AGOF?

The Axis Growth Opportunities Fund will be managed by Mr Jinesh Gopani and Mr Hitesh Das.

Currently, Mr Jinesh Gopani is the Head of Equities at Axis Asset Management Co. Ltd. He has been associated with Axis Asset Management from October 2009.

He holds a Bachelor's degree in commerce (B. Com) and a degree in Master of Management Studies (MMS) from Bharati Vidyapeeth Institute of Management Studies and research.

He has a work experience of over 16 years in Equity Research and Fund management. He worked as a Research Analyst for 2 years with Net worth Stock Broking Ltd, then joined Emkay Share & Stock Brokers Ltd. as Research Analyst for 4 years. Further, he joined Voyager India Capital Pvt. Ltd. for 2 years as Research Analyst and Portfolio Manager. Thereafter, he was with Birla Sun Life Asset Management Company Ltd as a Portfolio Manager for 2 years before joining Axis Mutual Fund.

Some of the other Equity schemes he manages are Axis Focused 25 Fund, Axis Emerging Series 1 (1400 Days), Axis Emerging Series 2 (1400 Days), Axis Long Term Equity Fund and Axis Multi-cap Fund.

Mr Hitesh Das has to his credit a B.Tech, M. Tech followed by PGDM. He manages investments under ADRs/GDRs and other foreign securities at the fund house.

He has a work experience of over a decade as an Equity Research Analyst, wherein he was associated with Yes Bank as a Risk Analyst for a year. Later he joined Ebusinessware (India) Pvt. Ltd as an Equity Research Analyst for a brief term. Thereafter he joined Credit Suisse Securities (India) Pvt. Ltd. as an Equity Research Analyst for 1.5 years, followed by his association with Barclays Securities India Pvt. Ltd as Equity Research for 4 years before joining Axis Mutual Fund.

Outlook of Axis Growth Opportunities Fund:

As mentioned earlier, the aim of the AGOF is to tap the investment opportunities in the large and mid-cap space and hold a diversified portfolio.

(Source: Axis Growth Opportunities Fund Presentation)

From the presentation, the fund house believes that there is untapped growth potential in overseas stocks of large-cap companies and it reduces risk. With the aid of proposed Investment Advisor - Schroders Investment PLc., for global diversification investment, the fund can ensure capital appreciation for investors in the long-run.

In the current market conditions where small-cap and mid-cap companies are hammered, and so have large-caps tumbled; it provides an opportunity to do some value buying to the fund managers. However, amidst the extreme turbulence constructing the portfolio would not be easy and may inflict extremely-high-risk.

Amidst the macroeconomic uncertainties looming, the fortune of the fund would closely be linked to how the fund manager plays the investment strategy in the endeavour to accomplish the investment objective of AGOF.

[Read: Skip NFOs, Instead Consider Building A Strategic Mutual Fund Portfolio ]

Editors' note:

At PersonalFN to handle the turbulence of the Indian equity market we have formulated the "core and satellite strategy" for mutual funds investors.

The 'Core and satellite' investing is a time-tested strategic way to structure and/or restructure your investment portfolio.

PersonalFN's research states that 60% of the portfolio should be reserved for Core mutual funds and the balance 40%, for the Satellite mutual funds.

Also, when there is a change in market outlook, revisiting the strategically structured portfolio by reviewing assigned weights to funds and the portfolio, is imperious

It would do good to follow this strategy and hold a strategic portfolio, particularly because the Indian equity market would remain volatile for quite some time now.

Want to own the Ultimate Strategic Portfolio Ready-made Mutual Fund Portfolio based on the core and satellite approach of investing?

Looking for "high investment gains at relatively moderate risk"?

Subscribe to PersonalFN's "The Strategic Funds Portfolio for 2025"; it is geared to potentially multiply your wealth in the years to come. Subscribe now!

Author: PersonalFN Content & Research Team

This article first appeared on PersonalFN here.

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

Disclaimer:

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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