NEW DELHI: LIC Mutual Fund Asset Management Ltd will launch a balanced advantage fund, an open-ended dynamic asset allocation fund, which will invest across equity and debt and money market instruments using parameters such as valuation and earning drivers.
The new fund offer (NFO) will open for subscription on 20 October and close on 3 November.
Fund managers for LIC MF BAF will be Yogesh Patil for the equity portion, and Rahul Singh for the debt portion.
LIC MF BAF is benchmarked against a customised index, LIC MF Hybrid Composite 50:50 Index. The index composition will be 50% Nifty 50 TRI and 50% Nifty 10-year Benchmark G-Sec.
The fund will aim to keep gross equity allocation 65% or above to enable investors to avail of equity taxation benefits.
Balanced advantage funds have seen a sharp spike in their popularity over the past few years. This is because asset management companies (AMCs) use derivatives to reduce the effective equity exposure in them below 65% while maintaining the gross exposure at or above 65%.
This ensures equity-like taxation at a lower risk level. If an equity-oriented mutual fund is redeemed after one year, investors are taxed at 10% for capital gains over ₹1 lakh.
As per the asset management company, investment strategy for LIC MF Balanced Advantage Fund will be based on a fundamental-driven mathematical model.
Explaining the model-based unique investment approach, Dinesh Pangtey, CEO, LIC Mutual Fund, said, “Bond yields, in a way, represent the opportunity cost of investing in equities and perception of risk appetite. We at LIC MF would be using this inverse relationship between equity and debt in LIC MF BAF for switching from equity to debt and vice versa, based on a fundamental driven mathematical model.”
LIC MF BAF model will use this relationship to determine optimal asset allocation level for the scheme. The model uses interest rates, one-year forward price-earnings ratio, and earnings yield, to arrive at the optimum asset allocation level.
There will be a 1% exit load for redemption before one year to be charged only above 12% of units allotted. There will be nil exit load after completion of 12 months from the date of allotment.
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