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The mutual fund industry frequently undergoes changes to adapt to evolving market conditions, investor preferences, and regulatory guidelines.
Recently, DSP Mutual Fund announced changes to the fundamental attributes of two of its equity schemes. Such changes can have a significant impact on investors, particularly when they alter key aspects like the investment objective, asset allocation, or risk profile.
A fundamental attribute change in a mutual fund refers to alterations made to the core characteristics of a fund that could materially affect an investor's decision to remain invested. These changes are not made frequently and, as per SEBI regulations, fund houses must provide investors with a 30-day notice period before implementing them.
Investors are given the opportunity to exit the scheme without incurring any exit load during this window if they feel the changes no longer align with their investment goals.
DSP Mutual Fund is one of the leading asset management companies (AMCs) in India, known for its wide range of equity, debt, and hybrid schemes. It has consistently focused on providing high-quality investment products to retail and institutional investors. The two schemes under consideration for changes are a part of DSP's equity offering, which is designed for investors seeking capital appreciation over the long term.
Let’s explore what these changes entail, why they matter, and how they can affect both existing and prospective investors.
[Read: All You Need to Know About SEBI’s Mutual Fund Lite and New Asset Class Framework]
DSP Equity & Bond Fund
The scheme known as the DSP Equity & Bond Fund will be called DSP Aggressive Hybrid Fund effective November 28, 2024. The scheme will invest 65-80% in equity and equity related instruments, 20-35% in debt instruments. The scheme has updated its guidelines to increase the maximum equity allocation to 80%, up from the previous limit of 75%. Additionally, it will now allow for overseas investments, with a maximum exposure capped at 15%.
According to the fund house, the revised investment strategy seeks to integrate both bottom-up and top-down methodologies, with an emphasis on assessing the intrinsic value of companies and prioritising those with a greater margin of safety. Additionally, the fund manager may utilize a covered call strategy to improve risk-adjusted returns.
DSP Quant Fund
The DSP Quant Fund's investment objective will shift to achieving superior returns compared to its benchmark over the medium to long term by focusing on equity and related securities. The fund's stock portfolio will be selected, weighted, and rebalanced based on a quantitative model.
The scheme will primarily target stocks from the BSE 200 TRI, chosen based on criteria like data availability, liquidity, and market capitalization. This strategic approach aims to enhance performance through informed decision-making in stock selection.
The quant model will subsequently identify stocks within the selected universe that exhibit specific factors such as value, quality, momentum, and growth, with parameters that can be adjusted according to market conditions. The transition from universe selection to portfolio construction will be systematic and optimized to maximize returns while adhering to prudent risk constraints.
The portfolio will be continually reviewed and rebalanced at least monthly based on model outputs. While the scheme primarily follows the quant model theme, it allows for some flexibility in stock selection at the fund manager’s discretion, particularly during significant market changes to manage volatility.
Exit Window for Investors
DSP Mutual Fund, the fund house is providing a 31-day exit window for unitholders from October 28, 2024, to November 27, 2024, inclusive. During this period, investors/unitholders who do not agree to the changes can switch to another scheme or redeem their investments at the applicable net asset value without incurring an exit load, subject to the provisions outlined in the Scheme Information Document.
Any transaction requests received after November 28, 2024, will incur applicable exit loads. Unit holders with pledged or encumbered units must submit a release letter before requesting redemption or switching. Investors registered for Systematic Investment Plans (SIPs) who wish to discontinue their contributions must cancel their SIP registrations. Redemption proceeds will be credited or mailed within three working days of the request.