LIC Mutual Fund to launch Balanced Advantage Fund

The new fund offer (NFO) will open for subscription on October 20 and close on November 3.

The fund manager of LIC MF BAF will be Yogesh Patil for the equity portion and Rahul Singh for the debt portion.

LIC MF BAF is benchmarked against a customized index, LIC MF Hybrid Composite 50:50 Index. The index composition will be 50% Nifty 50 TRI and 50% Nifty 10-year benchmark G-Sec.

The fund must have a target gross equity allocation of 65% or more to enable investors to take advantage of equity taxation benefits.

Balanced advantage funds have seen a huge jump in popularity over the past few years. This is because asset management companies (AMCs) use derivatives to reduce their effective equity exposure to less than 65%, while maintaining gross exposure at or above 65%.

It ensures equity-like taxation at a low risk level. If equity-oriented mutual funds are redeemed after one year, investors are taxed at 10% for capital gains ₹1 Lac.

According to the asset management company, the investment strategy for LIC MF Balanced Advantage Fund will be based on a fundamentally driven mathematical model.

Elaborating on the model-based unique investment approach, Dinesh Pangte, CEO, LIC Mutual Fund said, “Bond returns, in a way, represent the opportunity cost and risk appetite of investing in equities. We in LIC MF will use this inverse relationship between equity and debt in LIC MF BAF to switch from equity to debt and vice versa, based on a fundamentally driven mathematical model.”

The LIC MF BAF model will use this relationship to determine the optimum asset allocation level for the scheme. The model uses interest rates, a one-year forward price-earnings ratio and earnings yield to arrive at the optimal asset allocation level.

There will be a 1% exit load for redemptions before one year, which will be charged only over 12% of the allotted units. There will be zero exit load after completion of 12 months from the date of allotment.