A. OIGMMFoF is a debt oriented hybrid fund that invests in a set of equity and debt funds. The product features two options:

•  15% Equity Plan : Under normal market conditions, the plan invests approximately 85% of its net assets in debt funds, liquid funds, money market funds and money market securities and the balance of about 15% in equity funds.

•  30% Equity Plan : Under normal market conditions, the plan invests approximately 70% of its net assets in debt funds, liquid funds, money market funds and money market securities and the balance of about 30% in equity funds.

OIGMMFoF separately chooses debt funds and equity funds, and blends them to create the hybrid portfolio.

A. According to the applicable regulation for fund of funds, an additional fee of 0.75% can be charged by OIGMMFoF, over and above the expenses charged by the underlying funds. The debt oriented hybrid funds in the market, can charge a maximum fixed recurring expense of 2.25%. It would then seem that the fixed recurring expense (FRE) for OIGMMFoF would be 2.25 + 0.75 = 3%. That need not be the case, given the structure of OIGMMFoF. Since the debt and equity components of OIGMMFoF would be managed separately, the actual expenses charged by the underlying fund may not be 2.25% in the case of OIGMMFoF, given the expense structure of equity and debt funds in the industry.

For example, consider the 15% equity plan. Assuming a 1% FRE on the debt component, and a 2.5% FRE on the equity component, the underlying FRE for the OIGMMFoF portfolio would be (1 x 0.85) + (0.15 x 2.5), which amounts to 1.175%. To this number if one adds the FoF additional FRE of 0.75%, we have a FRE of 1.95%, which is still lower than the 2.25% maximum FRE for a single manager debt oriented hybrid fund. It is therefore expected that the recurring expense charged to the scheme would remain reasonably closer to the competitive ranges, even after charging the additional fee of 0.75%. The objective of OIGMMFoF is to endeavour to generate consistent alpha that adds value for the additional fee under the FoF format.

A. The returns from the equity markets are indeed attractive, but that does not make everyone an aggressive equity investor. Indian investors continue to predominantly prefer fixed income yielding investments. The need for capital protection perhaps is the biggest driver of this preference. Therefore it may not be entirely true that retail investors would always prefer to invest in equity because the markets have been moving up.

A. OIGMMFoF is perhaps one of first steps a conservative investor can take, into equity markets. The primary driver of this willingness to take a limited exposure to equity could be the falling interest income from many of the traditional saving products.

Faced with a drop in interest income and the lack of scope for any capital appreciation in principal invested, these investors could be eager to participate in the equity markets, but unwilling to take the risk that comes with the equity investment.

A hybrid product like OIGMMFoF, is an ideal stepping stone for these investors, enabling them to earn a better yield from their investments, while preserving their capital from the downside risks of the equity market. This can be achieved by limiting the allocation to equity in a portfolio, enabling limited participation in the upside, keeping the downside limited as well.

A. MIPs are also debt oriented hybrids, managed by single managers. It is difficult to choose a single fund that would consistently remain a top-quartile performer, across time and across market phases. OIGMMFoF is a multi manager solution that separately picks up equity and debt funds and combines them in a manner that aligns with OptiMix's view on the asset allocation to debt and equity. Therefore OIGMMFoF is not the typical MIP, but an improvised version of the same product.

The product is not designed to generate a regular income like a monthly income plan (MIP). OIGMMFoF seeks to focus on achieving a steady growth in capital, with the primary intention to preserve and grow the same. The compulsion to generate monthly incomes could impact the ability of the portfolio to grow steadily over time, which is why OIGMMFoF does not feature a fixed dividend payout schedule, unlike the MIPs.

A. The OIGMMFoF portfolio invests in a select set of equity and debt funds, short-listed through a tested proprietary process. The first step in this process is to set the objectives of the investment portfolio, which in the case of OIGMMFoF would be to generate consistent returns and seek to limit downside risk. In accordance with the objective of limiting the downside risk, the fund predominantly invests in debt funds. This is because historical evidence points to debt being low-return low-risk, while equity is a high-return high-risk asset class. This allocation between equity and debt, driven by the stated objective, is the fund's strategic asset allocation. (85:15 for the 15% equity plan and 70:30 for the 30% equity plan).

A. The asset allocation will be tactically managed to factor in dynamic changes in the markets and risk-return expectations. The flexibility to extend the allocation to equity to 20% (15% equity plan) and 35% (30% equity plan) will be exercised when, in the opinion of the fund managers, opportunity to earn a better return from equity, with relatively lower downside risks, exists. Similarly, the allocation to debt in both schemes can move up to 100% if in the opinion of the fund managers, the downside risk to equity outweighs the possible upside. The tactical asset allocation to equity and debt will thus be managed within these pre-set limits.

A. The allocation to equity and debt will be implemented by investing in a select separate set of equity funds and debt funds. The allocation to specific funds will be through a process of fund selection that involves both quantitative analyses of performance, as well as qualitative aspects. The objective is to ensure that there is adequate diversification across managers, and a desired level of consistency in the performance of the portfolio of funds. The weighting to funds in the portfolio will be actively managed, monitoring the actual performance of the funds against expectations, and factoring in qualitative changes to the funds. The style would be forward looking, rather than a mere analysis of past performance of funds .

A. No. The choice of funds is driven both by the in-house view on markets and the impact of including a fund on the risk-return characteristic of the product. For example, if the in-house view is that interest rates would harden, the choice of funds could be overweight short term and liquid funds, to protect capital. Similarly, if it is expected that large cap would outperform mid-caps, the choice of funds will be biased to implement this view. The OIGMMFoF investment strategy dynamically blends managers such that the objective of the fund is met. The optimization of return given risk, and risk given return is at the core of the OptiMix investment strategy and will drive the choice of funds.

A. The OptiMix investment process is active at all times, which means that there is no pre-fixed frequency at which funds will be reviewed. It is a continuous, active process that seeks to ascertain if performance of funds is as expected and makes modifications to manager weightings based on perceived changes as they occur, or are expected to occur. However, it is not as if the funds would be churned so much as to harm the objective of seeking consistent long term return.

The strategy deployed by OptiMix is a core and satellite approach. Managers with the ability to perform consistently across market cycles, form the core of the fund. Their management styles are closely aligned to the objectives of OIGMMFoF. Changes to the core managers will be necessitated only by extraordinary or unexpected turn of events. However, the weights to the core can be marginally changed or gradually altered in line with the fund's market view and strategy. The satellite managers or those that are added to the portfolio for their special capabilities, that contribute to the performance of the portfolio. Weightings and choice of satellite managers can change more frequently, depending on their contribution to portfolio risk and return, over time. The investment strategy also involves selection and monitoring of a set of back-up funds, that can replace a core or satellite fund, should the need arise.

A. The OptiMix investment process is active at all times, which means that there is no pre-fixed frequency at which funds will be reviewed. It is a continuous, active process that seeks to ascertain if performance of funds is as expected and makes modifications to manager weightings based on perceived changes as they occur, or are expected to occur. However, it is not as if the funds would be churned so much as to harm the objective of seeking consistent long term return.

The strategy deployed by OptiMix is a core and satellite approach. Managers with the ability to perform consistently across market cycles, form the core of the fund. Their management styles are closely aligned to the objectives of OIGMMFoF. Changes to the core managers will be necessitated only by extraordinary or unexpected turn of events. However, the weights to the core can be marginally changed or gradually altered in line with the fund's market view and strategy. The satellite managers or those that are added to the portfolio for their special capabilities, that contribute to the performance of the portfolio. Weightings and choice of satellite managers can change more frequently, depending on their contribution to portfolio risk and return, over time. The investment strategy also involves selection and monitoring of a set of back-up funds, that can replace a core or satellite fund, should the need arise.

A. The management style for OIGMMFoF is different in the following aspects:

• The choice of funds is completely unfettered and unbiased. There is no compulsion to allocate any part of the portfolio to specific in-house or affiliate funds.
• The asset allocation is tactically altered in view of market conditions and manager performance, and therefore is active at all stages. It is not a passive 'fit and forget' style of manager selection.
• The equity and debt components are managed by separate funds, being the best of breed in their own category, bring the best of both in one product.
  
  

• The investor is able to invest in a choice of debt and equity funds, under a single product. When he buys OIGMMFoF, he buys in one solution, a combination of the best of breed equity and debt funds, in a proportion that serves his investment objectives.
• The investor can choose to remain passive, buying and holding OIGMMFoF. The underlying active processes of choice of funds, and in turn those funds' choices of stocks and securities, ensure that portfolio itself is actively managed.
• The investor does not have to incur the costs of monitoring the performance of funds, and of switching between funds from time to time. These processes are efficiently managed by OptiMix for them.
  

A. Mutual fund products are subject to market risks. Therefore their return can be measured only relative to benchmarks and peer group performance, and not in absolute numbers. The OIGMMFoF investment strategy seeks to achieve consistency in returns for investors. By combining different funds, and managing the diversity in their performance and styles, OIGMMFoF seeks to manage the portfolio in consonance with the performance objective. The performance objective is to be able to hold the best equity and debt managers together, so that OIGMMFoF could represent the top quartile in fund performance over 12 month rolling periods. The asset allocation is tactically managed to offer better downside protection to risk-averse investors.

A. Every investment strategy requires time to play out, and in the course of achieving its long term objectives, it can be subject to short term volatility. The OIGMMFoF investment process seeks to achieve long term returns, and rolling periods are used to ensure that there is consistency in its return performance, measured without any bias in the choice of 12 month periods.

The term 'manager' actually refers to the investment management firm, and not any individual fund manager. In this note the terms manager and fund are uses synonymously, in the context of fund of funds.