Last Updated on January 11, 2022 at 9:32 am
Kotak Pioneer Fund is a thematic open-ended mutual fund that aims to invest in domestic & international companies that pioneer change and innovation. The NFO period is ongoing and closes on Oct 23rd 2019. Let us find out more about the investment strategy and it is worth considering.
What is the definition of a Pioneering Innovations theme? According to the scheme document of Kotak Pioneer Fund, it will hold stocks of companies that embrace new forms of production, technology, distribution or process to challenge and displace existing businesses. This, the AMC believes will ensure competitive advantage, cost efficiency and growth.
This definition is largely subjective and at the moment, no independent third party in India to ratify or test. Not just the performance of the fund (see benchmark section below) but also the portfolio of the scheme. We have no choice, as of now, but to believe what the AMC marks as a pioneer stock!
What is the asset allocation of the fund? Equity and Equity Related Securities of
companies having pioneering innovations theme: 80% to 100%. Out of this, up to 35% can in international stocks via overseas mutual funds or ETFs. The rest of the portfolio can be filled with other types of stocks, bonds and the obligatory 10% of REITs & InvITs.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
What is the investment universe of Kotak Pioneer Fund?
The fund can operate without any market cap or sectoral limitations. The AMC has provided this image in the scheme presentation that illustrates how the scheme will differ from diversified equity funds.
While all diversified fund would also invest in pioneer innovators, Kotak Pioneer Fund would specialise in it. This comes with its own set of risks (see below). The AMC has identified a stock universe of about 120 companies as of now.
What are the risk factors? In addition to the usual risk factors associated with all mutual funds, especially those that invest part of the portfolio in foreign stocks, there are additional risks with a thematic fund. As with life, things may not go as planned. The “Pioneer innovators” held in the scheme may not fire as planned. They may either fail to disrupt established players or the disruption could be short-lived. Change in government policy can affect the business.
Naturally, the treatment (not cure) is diversification, across sectors and across the market cap. For example, hold enough established players who invest partly in innovation
Kotak Pioneer Fund’s home-made benchmark!
A mutual fund’s benchmark has only one purpose. Evaluate the risk and reward of the active fund manager for the associated expenses. This benchmark should be created and maintained by an external agency to prevent conflict of interest. Sadly this is not the case for Kotak Pioneer Fund.
The scheme benchmark is 85% IISL KOTAK INDIA PIONEERING INNOVATIONS INDEX + 15% MSCI ACWI INFORMATION TECHNOLOGY INDEX TRI.
The second index as you may have guessed is for the international equity component and also suggests that this fund will hold foreign IT stocks. The MSCI ACWI Information Technology Index holds large and mid cap funds across 23 developed markets and 26 emerging market countries. These are the current top ten holdings.
APPLE | 13.56 |
MICROSOFT | 13.31 |
VISA | 3.93 |
MASTER CARD | 3.25 |
INTEL | 3.03 |
Taiwan Semiconductor | 2.84 |
CISCO | 2.78 |
SAMSUNG | 2.58 |
ADOBE | 1.77 |
ORACLE | 1.73 |
The fun does not end there. The AMC created this index with 50 stocks based on the last six-month average market cap and back-tested the same, static 50 stock folio since Jan 1st 2013 and created these graphs (source: scheme presentation linked above). Now is this hindsight bias or survivorship bias or both?
Amusingly the margin of outperformance has come down recently! The IISL index is currently 81% large cap and the rest mid cap. So that is promising in terms of risk. Also, it is well-diversified as seen below.
Is Kotak Pioneer Fund Promising or is it too vague?
The idea of picking businesses that invest in innovation is quite promising. However when a fund does only that the risk becomes too concentrated. That said, the benchmark has a large cap tilt and well-diversified across sectors (as on date). The main problem is, how the stock universe is defined is not clear. There is no independently created index portfolio to understand portfolio construction and benchmark the fund’s performance.
As an analyst, I will be watching this fund, along with ICICI Prudential India opportunities fund and Quantums ESG fund with keen interest. However, I see no pressing hurry to commit any money (even a small amount) towards this.
There is always an urge to have a “small exposure” to such NFOs, but small exposure will result in insignificant returns and guarantees portfolio clutter as explained in this video.
So when your Kotak bank RM suggests this fund as the next big thing to you, simply say, no, thank you.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! You can watch podcast episodes on the OfSpin Media Friends YouTube Channel. 🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available! Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)