Union Equity Savings Fund: Should You Invest In This NFO? (2024)

Scheme Details of Union Equity Savings Fund

An open-ended scheme investing in equity, arbitrage, and debt.

Investment Objective of Union Equity Savings Fund*

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*Source: Scheme Information Document

(Read: What You Should Read In A Scheme Information Document)

Is Union Equity Savings Fund for you?

Equity Savings Fund as categorised by the market regulator is a Hybrid Fund. Meaning, it invests in equity and equity related instruments, debt & money market instruments, and explore arbitrage opportunities. If there are no arbitrage opportunities available, the scheme has the flexibility to invest in debt.

Union Equity Savings Fund (UESF) is an addition to the product basket of Hybrid funds from Union Mutual Fund (a 100% subsidiary of Union Bank of India)after Union Asset Allocation Fund (formerly known as Formerly Union Asset Allocation Fund - Moderate Plan).

Union Equity Savings Fund under normal circ*mstance will invest a predominant portion (65-90%) of its net assets in equity and equity related instruments including derivatives (viz. index futures, stock futures, index options, & stock options, etc.) and arbitrage opportunities (upto 40%), while the remainder will be parked in debt & money market instruments.

However, if suitable arbitrage opportunities are not available, then the fund manager may hedge the equity long position. But if debt/money market instruments are then providing more efficient returns than equity exposure, the fund manager may choose to have a lower equity arbitrage/hedge exposure.

Given that UESF will typically have a dominant exposure to equity and equity related instruments—including unhedged equities, the Scheme is suitable for investors with a moderate-to-high risk appetite and who have investment time horizon of at least 5 years.

Since Equity Savings Funds invest a dominant portion of its net assets in equities, the tax implication is same as for equity-oriented mutual fund schemes. If redeemed within a holding period of one year, Equity Savings Funds will attract a Short Term Capital Gain Tax (STCG) tax of 15%. And if redeemed after a period of 1 year, the Long Term Capital Gains (LTCG) in excess of Rs 1 lakh will be taxed @10%.

Asset Allocation of Union Equity Savings Fund

The asset allocation of Union Equity Savings Fund under normal circ*mstances will be as under:

# In Equity, unhedged equity exposure shall be limited to 40% of the overall portfolio. Unhedged equity exposure means exposure to equity shares alone without a corresponding equity derivative exposure.

If suitable arbitrage opportunities are not available, then the fund manager may hedge the equity long position. However, if the debt/money market instruments are providing more efficient returns than equity exposure then the fund manager may choose to have a lower equity arbitrage/hedge exposure. In such circ*mstances, the asset allocation of UESF will be as under:

Further it is stated in the offer document that:

• Investment in Securitized Debt will be Nil

• Investments in Derivatives will be upto 65-90% of the net assets of the scheme.

• Investments in Securities Lending will be upto 20% of its net assets of the scheme (where not more than 5% of the net assets of the scheme will be deployed in securities lending to any single counterparty).

• In accordance with SEBI Circular No. Cir/ IMD/ DF/ 11/ 2010 dated August 18, 2010, the aggregate asset allocation will not exceed 100% of the net assets of the scheme.

• The scheme does not intend to invest in overseas/foreign securities or participate in repo/ reverse repo transactions in corporate debt securities or engage in short selling or in Equity Linked Debentures or participate in credit default swap transactions.

(Source: Scheme Information Document)

Investment Strategy Of Union Equity Savings Fund

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UESF will follow a combination of unhedged Equity exposure of high conviction stocks along with arbitrage opportunities between spot and futures prices of exchange-traded equities and the arbitrage opportunities available within the derivative segment.

The investment team shall scan the market for opportunities and shall evaluate the individual companies on their merits, leading to the bottom-up investment decision.

If suitable arbitrage opportunities are not available in the opinion of the fund manager, the scheme may hedge the unhedged equity exposure against broader market indices with the balance being invested in debt and money market securities.

The fund manager shall use derivatives within the permissible limits actively in-addition to hedging and rebalancing the portfolio. Further, the fund manager could also use active cash calls as a means to rebalance or hedge the portfolio upto the permissible limits.

The fund manager will evaluate the difference between the price of a stock in the futures market and in the spot market. If the price of a stock in the futures market is higher than in the spot market, after adjusting for cost and taxes, the scheme may buy the stock in the spot market and sell the same stock in equal quantity in the futures market simultaneously.

However, if the debt/money market instruments are providing more efficient returns than equity exposure, the fund manager may choose to have a lower equity arbitrage/hedge exposure.

Who will manage Union Equity Savings Fund

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Union Equity Savings Fund will be managed by Mr Vinay Paharia, Chief Investment Officer (CIO) of Union Mutual Fund.

Mr Paharia, who has extensive experience of 15 years in fund management and equities, was recently appointed (on April 2, 2018) as the CIO at the fund house. Prior to joining Union Mutual Fund, he worked with Invesco Mutual Fund as Fund Manager–Equity. Before that, he has worked with DBS Cholamandalam Mutual Fund (now turned into L&T Mutual Fund) and K.R. Choksey Shares & Securities Private Ltd and First Global Stockbroking Pvt Ltd.

Mr Paharia is a Commerce Graduate (B.Com) from Narsee Monjee College and also has to his credit a Masters in Management Studies (MMS) degree from Welingkar Institute of Management, Mumbai.

The other funds managed by Mr Paharia at Union Mutual Fund are Union Equity Fund, and Union Balanced Advantage Fund (erstwhile Union Prudence Fund).

[Read: Aggressive Hybrid Fund or Balanced Advantage Fund, Which Is A Better Option?]

Fund Outlook for Union Equity Savings Fund

The launch of Union Equity Savings Fund comes at a time when the Indian equity market is yet again near its all-time high.

Correspondingly, also at a time where the Indian rupee hit an all-time low of Rs 69.00 against the US Dollar (USD) recently (on July 20, 2018), oil prices are blazing, India’s trade deficit has widened (hit a 5-year high in June 2018 to US$ 16.6 billion), inflation has inched-up yet again (touched 5% in June 2018 compared to 1.54% in June 2017) and is expected to mount further, and there pressure on India’s current account deficit and fiscal deficit.

Such a scenario appears challenging even to invest in the Indian debt market, particularly in longer maturity papers.

Nevertheless, the mandate of the fund could come as precaution provided the fund manager uses it thoughtfully to construct the investment portfolio, both equity (including derivatives) and debt, plus even while exploring arbitrage opportunities.

The fortune of the Union Equity Savings Fund will be closely linked to how the fund managers play their strategy while building the portfolio.

[Read: Why You Should Be Careful About Investing In NFOs]

1. Money Simplified Services Limited;
2. PersonalFN Insurance Services India Limited ;
3. Equitymaster Agora Research Private Limited;
4. Common Sense Living Private Limited;
5. Quantum Advisors Private Limited;
6. Quantum Asset Management Company Private Limited;
7. HelpYourNGO Private Limited;
8. HelpYourNGO Foundation;
9. Natural Streets for Performing Arts Foundation;
10. Primary Real Estate Advisors Private Limited;
11. Rahul Goel;
12. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest

1. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company, except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF and our associates has financial interest in the subject company.
2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS is also at arm's length and as per prevailing market practices.
   

Disclosure with regard to receipt of Compensation

1. Neither QIS nor it's Associates have any compensation from the subject Company in the past twelve months.
2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months, except that QIS had receive fees for services under sponsorship agreement from Franklin Templeton Asset Management India Pvt. Ltd.
5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report
   

General disclosure

1. The Research Analyst has not served as an officer, director or employee of the subject Company.
2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.
   

Subject Company means Mutual Fund Schemes

Quantum Information Services Pvt. Ltd. 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667

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