What are Market Neutral Funds? Are there better investment options in a falling market? Understand investment strategy

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Mumbai . Market-neutral funds are funds that reduce the risk in a falling market. These are funds that invest in both rising and falling stocks in the market. It is an Alternative Investment Funds (AIF) with a minimum ticket size of Rs 1 crore. It balances the risk in the market.

Avendus Capital has recently launched Category III Alternative Investment Fund (AIF)-Avendus Market Neutral Fund. Many AIFs that partially hedge their portfolios are already present in the market. This type of strategy can prove to be better than a simple ‘buy and hold’ or ‘long only’ strategy in a falling market.

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Minimum ticket size Rs 1 crore
The Nifty is down 11% since the beginning of the year 2022. In such circumstances, such funds become more effective. However, experts suggest buying after looking at the track record of such funds. Since such funds are AIFs, they have a minimum ticket size of Rs 1 crore. That is, at least one crore rupees will have to be invested.

Invest in 100 largest listed companies
Avendus Market Neutral Fund tries to eliminate the risk of the market completely. It has a 100 per cent hedge position with a target of only 10 per cent up or down. It will do this using stock futures and will primarily target the 100 largest listed companies. Avendus Capital already has one such plan – Avendus Absolute Return Fund. However, the new scheme will use a quant-based strategy and target 8 to 11 per cent return after tax.

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it reduces the risk
Vaibhav Sanghvi, Co-CEO, Avendus Capital said, “Equity investing involves two types of risks. The first is market risk, which is the risk of the entire market going up or down. The second is stock selection risk, which is the risk of choosing the wrong stock. This model of ours will eliminate the threat first.

1% management fee
We will use the combination of momentum. Meaning which stocks are falling and which are climbing. Will invest on this basis. This type of strategy minimizes the risk of having a wrong trade. In this, there is 1 percent management fee for investment from one crore to 5 crore. Also, there is a performance fee of 25 percent after the 10 percent key.

For example, if your investment of Rs 1 crore brings in a return of Rs 20 lakh, Avendus will charge a management fee of Rs 1 lakh. It also charges a performance fee after a return of more than 10 per cent, according to which it will charge a performance fee of Rs 2.25 lakh.

Tags: investment and return, Mutual funds, Share market, Stock Markets

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