This fund house launches its maiden equity fund after 3+ years. Here's why.

TRUST Mutual Fund has been known to only dabble in debt funds. Since its inception in January 2021, it has launched seven funds, all of them being debt-oriented.

But that script is about to get flipped, with the financial services company recently launching their maiden equity fund: TRUSTMF Flexi Cap Fund. The fund's NFO (new fund offer) started on April 5 and will continue until April 19.

Despite the hectic period due to the ongoing NFO, the fund house's CEO, Sandeep Bagla, took time to explain the reasons for launching an equity fund, their philosophy, and their decision not to launch an equity fund earlier than now. You can read all this in our edited transcript.

TRUST MF has been known to offer only debt products since you began operations in 2021. What is the reason for launching an equity fund?

I think it was accidental (to launch only debt funds until now). Our actions led to this kind of positioning, not our desire to create it.

(Regarding the launch of the equity fund) Before launching the equity fund, we focused on getting the right person to head the team. Maybe we are one or two years late in launching the equity scheme, but any time is a good time to take the first step. We could have done a little faster, but now with the equity team in place, we are all set to expand our equity product basket going forward.

Equity markets are at an all-time high. How do you plan to build your portfolio, given that the valuations are currently high?

There are advantages to the bullishness in the market, and investor confidence is very high. Investors are willing to give a chance to invest in a new asset management company (AMC). The ease of investing has led to a deeper penetration of retail money in the equity markets through systematic investment plans (SIPs). So, a new fund offer (NFO) is not the only way to mobilise the money. We have seen schemes with just Rs 300 crore initially, but after one or two years, the size grew to Rs 5,000 crore as money flowed in subsequent years. So, it's very important to start your journey.

Regarding the valuation question, it might appear on the higher side of the historical standard. But if the expected growth comes in, these valuations will normalise. Globally, central bankers have printed a lot of money in the last few years, and high liquidity has led to valuations inching up. I believe that if liquidity remains as it is, then we don't think the valuations over a medium period should be of any concern to anybody.

What will the fund house's philosophy be when managing equity funds? What will be the TRUST MF's differentiating factor?

If we look beyond the financial and industry analysis and company-specific factors, we will focus on the three things that create significant value for the companies. We are growth investors, and we believe that our Terminal Value Investing framework and Growth at Reasonable Valuations (GARV) approach offer a differentiated alternative for equity fund investors.

To explain the Terminal Value framework, we look at the value of a company beyond the foreseeable future by gauging these three things: megatrends, leadership and intangible factors. This strategy helps identify the true potential of a growing company and helps us capture the full value creation.

Meanwhile, GARV is an investment approach that identifies stocks with strong growth potential at reasonable valuations. The TRUSTMF Flexi Cap Fund encompasses this philosophy, and the mandate enables the fund to adapt and navigate various market conditions for sustainable investment success.

How big is your investment team, and do you plan to hire more people?

We must consider the team size in the context of our investment universe. So, we actively look at about 250 companies, and for that, we have a team of five analysts, which excludes one fund manager and a chief investment officer (CIO). This team is big enough to manage Rs 20,000-30,000 crore of assets.

Apart from that, we also have top equity brokers associated with us, and we will definitely benefit from their interactions with companies, industry recommendations and their research analysis.

How do you plan to find a niche in such a competitive (mutual fund) industry?

The beauty of these markets is that there's tremendous growth, and new investors are entering the mutual fund industry. Investors are increasing their allocations, and the longevity of staying invested in mutual funds is also going up. So, there is room for growth for everyone. I also think that if we have a slightly differentiated investment strategy, we will be able to find a place in the heart of the investor as well as his wallet. We must focus on the market's future potential, which is growing rapidly. This industry is very tolerant and accommodating. We have launched an extensive mass media campaign through advertisements to show how we would spot 'Gorilla companies'. We are sure we can create and capture investors' attention with our funds. Apart from that, we also plan to increase the distribution network across India. During the roadshows that we have conducted recently across 40-50 cities, we have called distributors and explained our strategies to them. The reception has been quite encouraging. People liked the idea of terminal value investing and are willing to work with us.

Also read: Interview with Abhishek Singh of DSP Mutual Fund