In an exclusive interview with CNBCTV18.com, Sanghavi opened up about the approach behind the new fund and business cycle funds in general. The fund focuses on various ways to study the market, including market capitalization (small, medium and large), flexible capitalization (flexicap), sector classification such as IT, consumption and manufacturing. He explained that Like thematic funds, business cycle funds also take a thematic approach.
These funds operate strategically at different stages of the economic cycle, thereby taking advantage of sectors poised for growth. This strategic adjustment takes into account various economic indicators such as GDP, inflation, interest rates, fiscal deficits, capital investment cycles, and government policies.
“Unlike more focused sectoral schemes, these funds offer a less risky approach by diversifying across multiple sectors,” Sanghavi said.
Features
Sanghavi said cyclical funds are characterized by the ability to dynamically select sectors based on relative valuations. He emphasized that the Fund will act as an aggregator of various allocations and strategically adjust economic and market cycles.
This approach involves constructing portfolios with sectoral priorities that correspond to different stages of the economic cycle, with the aim of generating long-term capital appreciation.
return
The rise of cyclical funds is evident in the market, with subscriptions increasing from just one fund in December 2020 to 10 funds now. Leading wealth management companies in India such as HDFC, Kotak, Axis and Aditya Birla Sun Life have introduced unique schemes within this category.
Recent data shows that cyclical funds are delivering decent returns. Among the 10 schemes in this category, the oldest scheme, HSBC Business Cycles Fund, boasted a one-year return of his 19.86 per cent. At the other end of the spectrum, Aditya Birla Sun Life Business Cycle Fund reported a return of 11.40 per cent over the same period, according to Value Research.
Here are six-month returns for some cyclical funds:
| Plan name (regular plan) | 6 months return |
| Tata Business Cycle Fund | 19.70% |
| ICICI Prudential Business Cycle Fund | 15.91% |
| HSBC Cyclical Fund | 15.97% |
| Baroda BNP Paribas Business Cycle Fund | 13.49% |
| Aditya Birla Sun Life Business Cycle Fund | 11.51% |
(Source: Value Research)
Risks and challenges
Sanghavi advised that it is wise to invest in well-defined thematic funds, such as cyclical funds, when dealing with potential risks. However, he acknowledged that these funds have their own challenges, and emphasized that skilled fund managers continue to make strategic sector selections to maximize returns.
As you understand, investing in cyclical funds offers a dynamic strategy that adapts to changing economic conditions and can deliver lucrative returns while effectively managing risk. However, it is important to consider certain factors before making an investment decision. Given the rapid fluctuations in business cycles, these funds may not maintain returns for all investors. The success of these funds relies heavily on the expertise of the fund managers, market analysts say.
Given the challenge of generating consistent returns, choosing the wrong sector can have a significant impact on a fund's performance. Therefore, potential investors should exercise due caution and make investment decisions based on thorough research and due diligence. Those considering these funds are advised to have a long investment horizon. Alternatively, a deep understanding of a particular sector is critical to accurately timing entry and exit points.
