IDFC Asset Management (MF)

About

IDFC Mutual Fund was established in 2000. It was set up with the sponsorship of the Government of India (GOI) with a major portion of its shares held by the GOI, the Government of Singapore, AIG, the International Finance Corporation and JP Morgan, Citigroup, Morgan Stanley and Goldman Sachs.

The AUM stands at INR 1,14,731 lac crore (~$14 billion @ INR 82 per USD).

There are 153 schemes run by the IDFC AMC owned Bandhan mutual fund. Headquartered in Mumbai, the fund house offers a diverse range of mutual fund schemes across equity, debt and hybrid categories that includes funds for wealth creation and tax saving. 

IDFC Mutual Fund has been acquired by the consortium comprising Bandhan Financial Holdings Limited (BFHL), GIC and ChrysCapital. Bandhan is to hold 60 per cent (of the acquired entity) with control of operations and the other two  holding 20 per cent each in the AMC. IDFC Mutual Fund stands changed to Bandhan Mutual Fund with effect from March 13, 2023. 

Key details from financial statements for FY 21-22 

yearTotal income(INR crores)Total expense(INR crores)EBIT(INRCrores)EBIT(%)Net profit(INR crores)Total income(USDMillion)Total expense(USD million)Net profit(USDMillion)
2021-2257.722235.7262%35.727.72.934.76

Key staff

Vishal Kapoor was appointed as Chief Executive Officer at IDFC Asset Management Company Limited in 2016. He has over two decades of  experience in financial services across functions and businesses including asset management, banking and consumer marketing.His last assignment was with Standard Chartered Bank as the managing director, wealth management, India. He was also a director on the board of Standard Chartered Securities India Limited. He is a management graduate from IIM Ahmedabad and holds a Bachelor’s degree in Commerce from St. Xavier’s College, Kolkata.

Manish Gunwani joined IDFC Asset Management Company Limited in January 2023 for heading the equity fund management for the fund house. Mr. Gunwani has over 25 years of experience, covering the entire gamut of equity research as well as fund management. In his previous assignment, Mr. Gunwani was the Chief Investment Officer – Equities at Nippon India Mutual Fund where he was responsible for equity AUM exceeding Rs 1.2 lakh crores. Before this, he was the Deputy CIO (Equities) at ICICI Prudential AMC, where he was instrumental in scaling up two flagship funds to a cumulative AUM of over Rs. 35,000 crores. Mr. Gunwani graduated from IIT Madras and has a postgraduate diploma in management from IIM Bangalore.

Suyash Choudhary is the head of fixed income at IDFC Asset Management Company Limited. He has experience spanning over 16 years in fixed income investments. Prior to joining IDFC AMC he was associated with HSBC Asset Management (India) Pvt. Ltd as head of fund management (fixed income) where he was responsible for investments of all fixed income funds. Prior to HSBC AMC, he was also associated with Standard Chartered Asset Management Co. Pvt. Ltd. as fund manager. He holds a Bachelor Degree of Arts (Hons) in Economics from Delhi University and Post Graduate Diploma in Management from Indian Institute of Management, Calcutta. 

Investment philosophy 

Equity – AMC offers a fundamental and research-driven framework. Research ideas are taken through their proprietary seven-factor investment framework that guides stock selection. Each investment theme uses a unique combination of weights within this overarching framework, making their portfolios truly distinct. Risk is managed proactively and prudently through their portfolio construction and review process, as well as through independent, system-based ongoing monitoring. They offer a diverse range of growth-oriented investment strategies across market caps, and across themes such as infrastructure or consumption. 

Fixed Income – Their fixed income investment strategies are backed by strong fundamental and macro research, with an eye for quality and consistency. They offer products across both front-end carry oriented strategies as well as actively managed long-bond or sovereign funds.

For the debt mutual funds the firm follows Debt Framework philosophy that divides asset allocation for Debt funds in 3 categories.

  • Liquidity(For parking surplus for short term)
  • Core(Focus on high credit quality)
  • Satellite(High Risk – duration or credit risk)

Fund-wise investment philosophy and process

Before the firm mentioned philosophy for the overall firm on its website, however there was a fund-wise investment philosophy and process for some funds.

IDFC Core Equity Fund 

IDFC Core Equity Fund is a diversified equity fund with a Large & Mid Cap bias. The fund focuses on  building a portfolio of quality stocks with lower relative valuations. Quality is determined on three fronts- 

  • Conversion of EBITDA to operating cash
  • Moderate leverage
  • Profitability

The fund uses the following strategy –

  3-factors filter is used to identify Quality Stocks:

   1.   Ability to generate cash 

      Criteria PAT + non-Cash Charges – Increase in Working Capital) / EBITDA > 33%

   2. Reasonable return on capital 

      Criteria: – Return on Net Worth > 15% OR EBITDA / Net Operating Assets > 30%

   3. Ability to repay debt  

                             Criteria: – Debt / EBITDA < 3

IDFC Emerging Businesses Fund 

This fund is for the investors who seek to create wealth over the long term. It invests in equity and equity related instruments of small cap companies. The fund aims to identify and invest in companies with steady growth prospects, operating in industries with a stable growth visibility over the medium term – 2-4 years. The fund aims to hold cash levels of up to 10% across time periods, both as a measure of liquidity as well as to capitalize on opportunistic investing.

  • Buy and Hold (Strategic)
  • Opportunistic (currently, cyclic)
  • New Business (IPOs)

The fund’s stock selection process focuses on “Quality” and “Growth”

IDFC Flexi Cap Fund

The scheme seeks to generate long-term capital growth by investing in a diversified portfolio of equity and equity related instruments across market capitalization – large cap, mid cap and small cap, fixed income securities and money market instruments.

IDFC Sterling Value Fund

It is a value fund and the focus is on active stock selection strategy and investments are made across equity and equity related instruments following a value investment strategy.

IDFC Infrastructure Fund

This scheme invests across the infrastructure value chain and investments are made in equity and equity related instruments of companies that are participating in and benefiting from growth in Indian infrastructure and infrastructural related activities.

IDFC Arbitrage Fund

This fund focuses on  generating low volatility returns over the short to medium term.  Investments are made in arbitrage opportunities in the cash and derivative segments of the equity markets with balance exposure in debt and money market instruments.

Media

Bandhan Financial, ChrysCapital and GIC team up to buy out IDFC Mutual Fund for Rs 4500 crores

https://www.livemint.com/companies/bandhan-financial-chryscapital-and-gic-team-up-to-buyout-idfc-mutual-fund-for-rs4-500-cr-11649255699576.html

7 factor model of stock selection with Vishal Kapoor, Groww, 20 June 2019

In the interview Vishal Kapoor was asked about the Investment Philosophy of the firm. To that he cited, the IDFC mutual fund focuses on three key areas.

  1. Distinct and well-designed Products for different needs of the investors.
  2. Convenient Investment Process.
  3. Simple and relevant communication.

He also cited the traits they look at for selecting equity stocks. They follow 7 factors stock selection process in which they focus on the following factors:-

  1. Quantitative factors
  • Earning growth
  • Relative valuation
  • Financial track record.
  1. Qualitative factors
  • Competitive strength 
  • Scalability
  • Sector outlook
  • Management quality.

They follow this framework for all the funds. The relative weights to the factors  are changed according to the fund objective and theme.

In the interview he was also asked  about the investment advice for the young investors, he shared the following tips from some of his learnings from his experience in the industry. 1) Don’t let money sit idle. 2)To have a clear objective for the investment. 3)Advised to start small and build gradually as “little drops make a mighty ocean”.

Interview: Vishal Kapoor CEO, IDFC AMC, Dalal Street Investment Journal,12 September 2019

https://www.dsij.in/DsijIssueDetails/ArtMID/10519/ArticleID/9359/interview-vishal-kapoor-ceo-idfc-amc

In this interview also he mentioned the investment philosophy of funds. He reiterated that IDFC AMC focuses on three core areas: well-designed, performing products; a convenient investing process; and simple easy-to-understand communication for the customers. Their focus is on investing in their fund management capabilities, technology, sales team and sales technology.

In the interview he was asked about the asset allocation strategy which an investor should follow. He cited that the best asset allocation is the one that looks to maximise returns with minimum risks in line with investors profile and objectives. Key to asset allocation is to choose the right asset class to invest in and allocate the right percentage of the total investment to each asset class as different assets perform differently in a different market and economic conditions.

On being asked about how they realize the daily speculative opportunities that market generates, he answered that they don’t speculate on market movements. They focus on valuations and forecasts. The decision to speculate on the market’s movements comes down to personal conviction and risk appetite.

 Anoop Bhaskar on being a relevant money manager,Morningstar, 17 May 2018

https://www.morningstar.in/posts/46379/anoop-bhaskar-relevant-money-manager.aspx

Anoop Bhaskar on being asked about his core investment philosophy said that he didn’t have any core philosophy that remained stagnant across different market phases. Instead his philosophy is based on few principles to which he gives relative weightage as per the market phases. Since the market keeps changing its character, he focuses on remaining relevant to investors. He focuses on the stocks that would do well down the road not the stocks which do well right now. He doesn’t restrict himself to be a quality investor but he would rather be relevant in an upward phase of the market, be prudent in bearish markets and more risk oriented in bullish markets.

He was further asked to explain how the principles play out in fund management. He said as in the Indian market inflow in the market is more when there is a bull run (which reflects high confidence) so it’s important to outperform in a rising market and not just be a second quartile player. The ability of a fund manager to outperform in a rising market gives the fund greater visibility than outperformance in a flat or negative market. He said that in fund management in India, it’s better to be Virendra Sehwag than Rahul Dravid.

In the interview he was also asked about his strategy on differentiating multi bagger from junk stocks in the bull market. To which he cited that they  studied the Indian market for the last 10 years and found that the stock of 92% companies with rise beyond 100% or 3-year  are backed by growth in earnings per share. There is less chance that a stock has risen multiple times without any earning potential unlike the situations of Indian markets in the 1990s. Therefore they focus on the companies where earning growth is higher than what market is forecasting and where valuations on a relative basis are comparable and the single factor in the Indian markets is the earning trajectory for next 6-8 quarters and he believes this is where the real outperformance comes from.

‘Those who profit from the market are the ones who hold their nerves’, Valueresearch.com, 19 May 2020

https://www.valueresearchonline.com/stories/48029/those-who-profit-from-the-market-are-the-ones-who-hold-their-nerves/

In the interview Anoop Bhaskar was asked about his strategy that he deploys to protect the downside and participate well when the market recovers. He said that participating in an up cycle is more important for attracting AUM rather than protecting downside, so at IDFC AMC, the funds like IDFC Core Equity Fund and IDFC Sterling Value Fund have taken the blow on the chin and maintained the beta during the downturn like they did in 2008 and 2011. He was hopeful that when the economy recovers from the pandemic blow they would again be at the forefront of the cavalry. This statement given by him in this interview is consistent with the earlier interview.

One should anchor to quality part of the market, Financial Express, 30 July 2020

https://www.financialexpress.com/market/one-should-anchor-to-quality-part-of-the-market-idfc-mutual-funds-suyash-choudhary/2039165/

In the interview Suyash Choudhary talks about the strategy he follows for IDFC Debt Mutual fund. He mentioned the same debt framework asset allocation strategy which is on the AMC website. He believes that the portfolio should be constructed in such a manner that whenever investors withdraw the money, the fund manager should be able to sell the securities and pay back the investors. Therefore, the core part of their philosophy is to ensure having liquidity in the portfolio. As the major proportion of investors in the debt mutual is of those who are turned from Bank’s fixed investments. So they keep that in mind  and allocate bulk of the fund in the ‘core’ products which are  conservative both on duration and credit risk and some part is allocated towards the ‘satellite’ fixed income products where there is high duration or credit risk. He believes that this strategy has helped them over a long period of time.

Prepared by: Punit Bansal, May 2021, updated Romita Basu Dec 2022

Updated by –  Akash Damani, June 2023.

You must be logged in to post a comment.