Source: Business Standard
Context:
Bandhan Mutual Fund has become one of the first movers in the industry to utilize newly expanded SEBI guidelines, allowing equity and hybrid schemes to invest in precious metals. The fund house has tweaked the mandates for its Smallcap, Flexicap, and Aggressive Hybrid funds to include exposure to Gold and Silver.
What are Multi-Asset Diversification?
Traditionally, the “investable universe” for equity funds was limited to stocks and short-term debt. Following recent SEBI relaxations, these funds can now diversify into commodities via ETFs (Exchange Traded Funds).
- Gold/Silver Exposure: The schemes can now allocate up to 10% of their portfolio to Gold and Silver ETFs.
- The Rationale: Fund managers can now capture “Beta returns” (market-linked returns) from commodities, especially when there isn’t a suitable listed stock (equity play) to represent that sector.
- Opportunistic Use: The allocation is not mandatory; it provides fund managers the flexibility to hedge against volatility or capture commodity rallies when equity markets are stretched.
Key Concepts
Q: What is a “Covered Call” strategy?
A: This is an options strategy used to generate extra income and reduce risk. A fund manager holds a long position (owns the stock) and sells (writes) a Call Option on that same stock. The fund collects a “premium” from the buyer. If the stock price stays flat or rises only slightly, the fund keeps the premium, which cushions the portfolio against minor dips.
Q: What are InvITs (Infrastructure Investment Trusts)?
A: InvITs are like mutual funds but for infrastructure. They pool money from investors to invest in completed and revenue-generating infrastructure projects (like toll roads or power transmission lines). They are added to these funds to provide a steady stream of cash flow (dividends/interest).
Q: What is “Beta Return”?
A: Beta represents the baseline return of a specific market or asset class. By investing in Gold ETFs, the fund manager ensures they get the exact movement of gold prices (the Beta) without having to pick specific mining stocks.
Q: Why add Gold and Silver to an Equity Fund?
A: Gold and Silver often have a negative correlation with equities. When the stock market crashes due to geopolitical tension or inflation, precious metals usually rise. Adding them helps improve “Risk-Adjusted Returns”—meaning you get better returns for every unit of risk taken.
New Asset Allocation Framework (Smallcap & Flexicap)
| Asset Class | Minimum (%) | Maximum (%) |
| Equity & Equity Related | 65% | 100% |
| Debt Securities / Cash | 0% | 35% |
| Units of InvITs | 0% | 10% |
| Gold / Silver ETFs | 0% | 10% |
Conceptual MCQs
Q1. According to the new framework, what is the maximum percentage of a Bandhan Smallcap Fund that can be invested in Gold/Silver ETFs?
A) 5%
B) 10%
C) 35%
D) 65%
Q2. What is the primary purpose of adding a “Covered Call” mandate to an equity scheme?
A) To double the risk of the portfolio.
B) To generate income from option premiums and moderate volatility.
C) To invest only in gold and silver mining companies.
D) To guarantee that the fund will never lose money.
Q3. Why has Bandhan MF added InvITs to its asset mix?
A) To increase exposure to volatile technology stocks.
B) To focus exclusively on the real estate sector.
C) To enhance income generation potential and diversify the asset base.
D) Because SEBI has banned traditional debt investments.
Answers
- Q1: B (The framework allows for a range of 0% to 10%.)
- Q2: B (It is a defensive strategy designed to earn extra yield on existing holdings.)
- Q3: C (InvITs provide stable, long-term yields from infrastructure projects.)
