India is in a macro sweet spot: stable currency, small current account deficit, stable interest rates, encouraging monsoons, strong earnings growth in domestic focused sectors, input costs under control etc. All this points out to healthy medium to long term outlook for equity markets.
For investors to truly participate meaningfully in the market’s wealth creation potential over next few years, we have to encourage them to invest more (larger portion of their assets) and stay invested for longer. Investors are willing to allocate larger amounts to products which participate meaningfully in market upsides, which help limit drawdowns in market corrections, which are tax efficient and which overall deliver more than inflation returns over market cycles.
More, for longer happens best with hybrid funds like BAF and MAF (Multi asset fund) which tick off all the boxes of what most investors want from their financial assets. I-Pru MF is asking MFDs to carry this mantra of more, for longer through dynamic hybrids. It is critical to keep reiterating the benefits of asset allocation especially when markets are scaling new highs.
Large allocations in BAF and MAF categories does not automatically mean large exposure to equity – that’s the key message for investors. It means the ability to move significantly into equity when valuations become attractive and stay meaningfully on the sidelines when valuations become expensive.
If we were to categorize hybrids into 2 buckets – inflation fighters (those that aim to preserve the purchasing power of your money over time)and wealth creators (those that aim to deliver more than inflation so that you build real wealth over time), I -Pru’s Equity Savings Fund can be considered its flagship offering in the inflation fighting space and its BAF and MAF are flagships in the wealth creation space.
ESF’s modest net equity allocation helps it try to beat inflation while debt and arbitrage give it stability and accrual income. ESF’s track record since its re-positioning in 2021 suggests that it is well on track to deliver on its inflation-fighting proposition, especially in the context of its tax efficient structure.
I Pru’s BAF has in the last 10 years seen it going three times to both ends of its equity range (30-80%), reflecting the volatility of the market’s journey and the discipline of the fund’s valuation based asset allocation model. Market is once again not looking cheap on price/book and hence the fund is back again closer to the bottom of its net equity allocation.