Morningstar: Mutual Fund Guide

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Morningstar: Mutual Fund Guide
Morningstar India - 28 March 2019

Kotak Savings Fund

Investment Strategy


Kotak Savings Fund is managed by Deepak Agrawal, a highly experienced manager. Agrawal has a flair for managing credit strategies, which has been exhibited in his more than 15-year stint with Kotak.

The manager primarily invests in high quality credits, mainly AAA rated instruments.  The fund is positioned to deliver returns via accrual income rather than duration plays. Hence, credit selection and spread analysis are the main sources of excess return, and the focus is on identifying mispriced money market instruments and bonds with strong  credit fundamentals.

The investment process is consistent, with economic, credit, and liquidity analysis used to determine the fund strategy. Credit analysis is divided into banking, non-banking financial companies, and manufacturing debt, and they are further demarcated into three buckets based on the strength of the business, management and corporate governance standards. This then followed by rigorous quantitative analysis, wherein financial ratios such as leverage, coverage, and solvency ratios are considered. While constructing the portfolio, the manager follows a proprietary model to determine the exposure that he can take in each issuer. An independent risk management team ensures the limits are being adhered to. The manager conducts regular client profiling to understand their liquidity requirements and investment horizon.

To enhance the portfolio yield, the manager takes around 15-20 per cent allocation in sub-AAA rated securities and rarely goes below AA, provided he gets approval from the investment committee. The manager invests in lower rated credits but only if he is convinced in the company’s management and the promoter group’s financial strength.


Franklin India Smaller Companies Fund

Manager Biography And Fund Strategy


Franklin India Smaller Companies has put up appealing results since manager R. Janakiraman took over its reins in February 2011. Being a designated small and mid cap specialist with the fund house, Janakiraman is conversant with the risks associated with investing in this segment. Intensive research therefore forms the core of his investment approach.

The investment team places strong emphasis on qualitative aspects such as managerial strengths and corporate governance standards; also, rigourous business analysis is performed to understand the growth prospects of the industry, its competitive landscape, entry barriers, the company’s market share, and scalability prospects of the business, among others. Analysts construct sector-based model portfolios comprising the best ideas from stocks in their investment universe, which in turn are compiled by the research head to construct a diversified small and mid cap portfolio. R. Janakiraman uses this model portfolio as his initial reference point, and he selects companies that can generate consistent and sustainable earnings growth over a business cycle and have low leverage and reasonably high ROEs. He uses historical five-year data as a yardstick to project five years ahead. He is not very rigid on valuations, so long as the company fulfils his investment criteria.

The portfolio is well diversified across 70-75 stocks. Large caps account for 15 per cent of the portfolio and are mainly for managing liquidity. Cash calls are capped at 10 per cent. Janakiraman’s benchmark-agnostic approach coupled with bottom-up stock-picking results in a portfolio  that is distinct from the benchmark index or peers.



Reliance Tax Saver Fund

Manager Biography And Fund Strategy


Manager Ashwani Kumar is an experience fund manager and is supported by a strong team. Kumar invests across market cap segments based on valuations. Further, he runs a concentrated portfolio and can tend to invest in slightly less-liquid stocks, given the three-year lock-in period. Kumar seeks to invest in companies with strong growth prospects that he believes are trading at a discount to their intrinsic value. In effect, he attempts to balance both growth and valuation aspects while investing.

When building the portfolio, Kumar typically takes sizable underweight and overweight positions versus the benchmark. This unconstrained approach provides the manager with adequate flexibility to choose stocks and sectors from across the board. Kumar plies a growth-at-a-reasonable-price strategy and invests in companies with strong and sustainable business models. He will be flexible with valuations and pay what he thinks is fair price, given the company’s growth prospects. He tends to take a two- to three-year view on stocks and focuses on factors such as return on equity and return on capital employed when evaluating companies. Kumar looks for factors including management quality, superior technology, favourable cost margins, and brand equity, which can give the company a sustainable competitive edge. The top-down approach is important; factors such as the interest-rate scenario, barriers to entry, pricing power, policy measures, and expected consumption and spending patterns are considered when investing.

The manager typically aims to invest in differentiated businesses and gain a first-mover advantage in terms of identifying the stock as well as ensuring that he is buying at the right price points.


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