Kotak Balanced Advantage Fund – Meaning & Costs Involved

Kotak Balanced Advantage Fund helps you to maximize wealth by taking exposure to equities and debt instruments along with regular income generation over the long term. 

What is Kotak Balanced Advantage Fund?

Kotak Mahindra Mutual Fund house has recently launched a New Fund Offer (NFO) named as Kotak Balanced Advantage Fund.
It is an open-ended dynamic asset allocation scheme for wealth creation over a long investment horizon. The fund manager will allocate resources in equity, equity-related securities & debt, money market instruments while managing risk through active allocation. The investment strategy is dependent on the fund manager’s outlook on the overall economic scenario, global events, market conditions, the equity market valuation interest rate factors etc.

The scheme doesn’t assure or guarantee the achievement of investment objective of the fund. The scheme will be offered under two plans i.e. direct plan and a regular plan of the mutual fund. Additionally, both the variants are available in growth option and dividend option. The New Fund Offer (NFO) period is from 13th July 2018 and continues till 27 July 2018.

Where does scheme invest your resources?

It is essentially a dynamically managed balanced portfolio consisting of both equity and debt-related securities in order to reduce the risk and optimize returns of the long-term investor. The scheme invests 65-100% in equity & equity related securities, 0%-45% in equity derivatives, 0%-35% in debt & money market instruments and 0%-10% in units of REITs & INVITs.

Within equity allocation, the portfolio construction will be based on the thematic approach to bottom-up stock picking using the Business, Management, and valuation (BMV) model. The Fund Manager will evaluate 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, etc.

The net equity exposure is thus dynamically managed and is increased when the fund manager has a favorable view on equity as an asset class or is brought down when the view is not favorable or under defensive circumstances. The scheme may use derivatives as permitted by SEBI from time to time and subject to guidelines issued by SEBI from time to time.

The cumulative gross exposure through equity, debt, units of REITs & INVITs and derivative positions will not exceed 100% of the net assets of a Scheme. The scheme may also use fixed income derivatives instruments. The scheme may invest in securitized debt up to 50% of the debt allocation. The Scheme will invest up to a maximum of 35% of its net assets in foreign securities as specified in the SEBI circular.

How much does it cost to invest in the scheme?

The minimum application amount to purchase the units of the scheme has been fixed at Rs. 5,000/- and in multiples of Re. 1/- thereafter. The minimum additional purchase amount is fixed at Rs.1000 and in multiples of Re. 1/- thereafter and Re 0.01 for switches. There is no entry load to purchase the units. There’s no exit load to redeem 10% of the investments within 1 year of investment. However, the scheme charges an exit load of 1% on units in excess of 10% of investment upon redemption/switch within 1 year from date of allotment.

There are no exit loads if redemption/switching takes place after 1 year from the date of allotment. The scheme considers Nifty 50 Hybrid composite debt 50:50 Index as the benchmark to compare the performance of the fund. It is based on 50% Nifty 50 TRI and 50% of Nifty composite debt index. The fund managers of the scheme are Mr. Deepak Gupta & Mr. Harish Krishnan (Equity), Mr. Abhishek Bisen (Debt) and Mr. Arjun Khanna (foreign securities) respectively.

What are the risks involved in the Scheme?

As an investor, you need to be aware of the risks involved in investing in this scheme. The scheme might be exposed to the following risks:

• Mutual fund investing involves risks like trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal
• The Net Asset Value (NAV) of your investment in the scheme may go up or down due to changes in the price of the underlying asset, interest rates, changes in credit rating, trading volumes, settlement periods, transfer procedures and government policy
• Past performance needs to be looked at a reference and does not guarantee the future performance of the scheme
• The scheme may have to close derivative positions beforehand to satisfy large redemption which may lead to the basis risk causing variability of returns
• The low liquidity of mid-cap stocks may lead to moderate liquidity risks if there is a sudden large redemption
• The scheme attempts to allocate the assets between equity and debt asset classes in a dynamic manner according to the view of the fund manager. There can be possibilities that the markets may or may not behave as per the said view

What are the benefits of the Scheme?

Being an equity-oriented scheme, this fund is suitable for investors who have a relatively long-term investment horizon of say 5 to 7 years. Within equity allocation, the fund manager may venture into mid-cap stocks and derivatives as per limits prescribed by the SEBI. It makes the scheme a moderately high-risk proposition. The investors need to examine their risk tolerance before investing in it. The scheme would invest in other structured like real estate investment trusts which might seem complex to understand.

You need to understand the complete product while deciding to invest your money. The frequency of regular income may fluctuate as per the profits made by the fund. Hence, you can have other sources of income instead of completely depending on this fund for your income needs.

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