Bajaj Finserv MF debuts in equity segment with flexicap fund: should you invest?

Bajaj Finserv Mutual Fund is the 43rd entrant into India’s Rs 44 trillion mutual fund sector

New entrant Bajaj Finserv Mutual Fund has made its foray into the equity segment with the launch of a flexicap fund. Its new fund offer (NFO) opens on July 24, and closes on August 7, 2023. The scheme is called Bajaj Finserv Flexi Cap Fund.

Flexicap funds have the flexibility to change the allocation between largecaps, midcaps, and smallcaps, while ensuring that 65 percent of their allocations are in equity instruments.

On June 29, Bajaj Finserv Asset Management Company (AMC) made its debut with two debt funds —- a liquid and an overnight fund. The AMC also has approvals to launch two equity-oriented schemes — a balanced advantage fund and large- and mid-cap fund. Additionally, it also has got an approval to launch an arbitrage fund.

What’s on offer?The fund house says that rather than looking at past performance, it will look at monetising megatrends.

Mobile connectivity and penetration, the internet of things (IoT), artificial intelligence (AI), robotics, and climate change and emerging markets are some of the megatrends that have changed the trajectory of the global economy.

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“Ours will be a true-to-label flexicap fund with a potentially high active share score. It will focus on profitable industries and will have a relatively low turnover ratio,” says a senior fund house official who did not want to be quoted. A high active share score indicates the outperformance of a fund relative to a benchmark.

The scheme will be managed by Nimesh Chandan, Chief Investment Officer, and senior fund managers  Sorbh Gupta  (equities),  and Siddharth Chaudhary,  (debt). The fund will be benchmarked against the S&P BSE 500 Total Return Index.

What works?

Flexicaps funds comprise the biggest equity mutual fund category with net assets under management (AUM) of Rs 2.73 trillion as of June 30. Such funds are ideal for first-time investors as they offer relative safety with growth.

“Coming up with a flexicap fund as its first equity offering could work for Bajaj AMC. While the market is at an all-time high,  mutual funds remain underpenetrated relative to their potential. More fund houses are always welcome as they offer one more way of managing schemes and generating returns for investors,” said Harshad Chetanwala, co-founder of MyWealthGrowth.

Further, the fund’s strategy of picking up stocks based on upcoming megatrends and holding them for the long term can work in favour of the scheme in terms of lower costs and better returns.

What doesn’t work?

There are 36 flexicap funds available in the market currently, and on average, this category has delivered 19 percent returns in the past 12 months. In the past three and five years, the category has delivered 23 and 13 percent returns, respectively.

Given the wide variety within flexicap funds and an equally varied long-term performance, picking a fund that would be a clear winner in the long run is tricky.

Data available with ACE MF, a mutual fund research database, shows that among 22 funds which have a track record of at least five years, 13 schemes have delivered below-average returns.

The absence of a track record in a new scheme is always a big negative.

What should investors do?

Bajaj Finserv Mutual Fund is the 43rd entrant into India’s Rs 44 trillion mutual fund sector. Chandan comes with a good pedigree and has a good track record. The thought process and approach towards stock-picking and fund management that he shared at the time of the fund house’s launch in June inspires confidence. In his earlier stint, he headed equities fund management at Canara Robeco Mutual Fund.

The fund has piqued the interest of some distributors and advisors. Viral Bhatt, Founder, Money Mantra, says that a SIP this fund can be a good option for those who do not have a flexicap scheme in their portfolios.

“Investors can benefit from the strongest megatrends that the fund managers spot across sectors, themes, market caps, and geographies," he said. Chandan also added that the fund house would use its understanding of behavioural finance to pick stocks and sectors that, he stresses, ensures that they are long-term trends and based on a good rationale, rather than just momentum.

However, Bajaj Finserv Mutual Fund is a new fund house, and one is yet to seen their strategies pan out. Due to its large appeal, a flexicap fund might be a safe way for a new fund house to launch its first equity scheme, but the sheer variety of funds already present in this category means that you can look at existing schemes for now.