Expertise & Diversification | Value Research Arvind Chari, Senior Fund Manager - Fixed Income, Quantum MF, speaks on building a FoF
Special Report

Expertise & Diversification

Arvind Chari, Senior Fund Manager - Fixed Income, Quantum MF, speaks on building a FoF

Why would investors even consider a FoF?
The basis of a mutual fund is to avail of an exposure to equity and benefit from professional expertise and diversification. A FoF is an extension of this logic. An investor may like a particular fund house but not know which scheme from that asset management is the best and which one is below average. There are 3,000-odd equity schemes / plans in the market. How can a retail investor make a pick?
The FoF manager selects the best and the most appropriate schemes in the industry for the investor.
Also in an FoF, the investor by one single transaction meets his diversification needs. FoF does away with the need of multiple systematic investment plans (SIPs) in multiple funds. So it is a lot easier and hassle free to transact and manage.

How do you make the selection of funds that go into your product?
We don’t invest in sector or thematic, not even index funds. We only invest in 5-10 equity diversified schemes.
We have different quantitative parameters like annual returns, rolling returns, risk adjusted returns, market cycle returns and long-term returns. We also have other parameters such as not too concentrated portfolios. We consider funds that have been around for at least 3 years but are scoring criteria is biased towards funds which have long-term consistent track records.
From a qualitative aspect, we send questionnaires to the fund managers to understand their thought process, the investment philosophy, research process and size of research and investment teams. We look to see if the portfolio is reflective of the stated investment objective. We also meet the fund managers when we review our holdings. On the basis of all this, we arrive at a scoring and final selection. Though this process is reviewed on a monthly basis, we do not change our portfolio holdings every month. Portfolio changes happen if there has been a change in the fund manager and a change in stated investment objective or if there is a continued substantial dip in performance.

How do distributors view this product?
With a FoF, you actually do not need an intermediary. An investment advisor helps clients choose good funds and charges them fees to do so. The FoF actually does the same thing, that too without any individual biases. So from an investor’s perspective, they don’t need an investment advisor, if they choose to invest into equities through a fund of funds.

Other Categories