WF: What is the rationale for launching a low volatility index fund now?

Shrawan: Volatility is an inherent element and a perpetual force in the equity investing, however investors usually are uncomfortable with heightened volatility. So there is a need to find an ideal balance between the returns and risk to achieve long term financial goals. This is where low volatility investment approach plays its role. Low-volatility investing aims to provide better risk adjusted returns over time with lesser volatility by investing in companies with lesser price volatility. Generally, companies with stable and stronger business models have lower price volatility and due to strong balance sheet these companies are less susceptible to recessions and other macroeconomic events.

Low volatility investment approach provides higher stability to the portfolio with downside protection during market corrections. The merits of low volatility strategies is majorly felt during heightened volatility in Equity markets which we are witnessing currently, therefore we are coming up with an investment solution for investors who want to invest in a portfolio of stable and stronger companies with potential to generate better risk adjusted returns with lessor volatility.

WF: The benchmark index is heavily skewed towards FMCG and pharma sectors with IT and auto getting a good representation. While strong cash flow generating consumer facing businesses are inherently lower on volatility, they also normally underperform the early stages of a new economic and market cycle – which is what we believe we are in. Given that this index is currently underperforming this bull market, is there a risk of investor disappointment in the coming couple of years?

Shrawan: Lower volatility in stocks price movement is an outcome of stable model represented by stronger balance sheet, better returns on capital and stable earnings growth. Because of strong business model these companies have potential to deliver sustainable earnings growth in the long term. In terms of sectoral exposure the benchmark index i.e S&P BSE Low Volatility Index has higher exposure to structurally high growth sectors like Consumer Goods, Automobile, Pharma etc and lower exposure to sectors with higher volatility like Financial Services, IT and Oil and Gas. Further the objective of low volatility investing is to provide better risk adjusted returns over time with less volatility therefore the stocks with lower volatility generally tend to hold up better when markets decline rapidly while it aims to capture larger part of upside during market rallies. It is difficult to predict market cycles in advance and hence one should invest in Low volatility strategy from medium to long term perspective.

WF: For whom is this new fund suitable and what is the communication strategy to help prospective investors understand what they should and should not expect?

Shrawan: We believe this is an all-weather strategy and suitable for investors looking to take exposure in companies with low volatility within the universe of S&P BSE LargeMidcap Index while investing in quality businesses that generate economic value. Further being a passive fund it will also be suitable for investors looking for a disciplined approach to the portfolio construction, while adhering to the defined selection process.

WF: How do you see investors and intermediaries using index funds? Are they tactical overlays on a core set of active funds or do you see index funds becoming the core with active strategies as the overlay?

Shrawan: Index funds are simple and low cost products to achieve market returns and therefore the Broad Market cap based Index fund should be core part of any investors portfolio as they helps to generate market returns by tracking performance of an Index subject to cost and tracking error. Additionally, Investors may consider investing in Active Equity and Hybrid funds, thematic funds and factor based Smart beta Index funds based on risk appetite and investment objective.

WF: ETFs have now become the largest fund category in the industry, displacing liquid funds that always held the pole position. To what do you attribute this affinity towards index tracking ETFs?

Shrawan: Globally, passive funds are growing faster than active funds in last couple of decades, as active funds are unable to generate alpha on consistent basis. In the domestic front we are still at a nascent stage in terms of retail participation in ETF and Index funds as larger part of growth in ETF AUM have come from provided and pension funds. We believe that the Active and passive funds would co-exist and play their complimentary role in catering varied category of investors who have different investment objective.

WF: What are UTI MF’s plans in the passives space? Will you also venture into smart beta funds?

Shrawan: UTI AMC has an experience of managing index funds for over 2 decades and is the largest asset manager in the index fund category with assets of ~ Rs. 8,700 Cr ( Jan 31, 2022). We also have a strong track record of managing tracking error and currently we have one of the lowest tracking errors in all our passive offerings ( Index Fund and ETFs) across time frames. We forayed our presence in the smart beta index fund category in March 2021 with the launch of our first smart beta index offering i.e UTI Nifty 200 Momentum 30 Index fund based on Momentum strategy and within 10 months of launch, we scaled our fund to more than Rs 1000 Crore AUM to be the 1st Smart beta Index fund which has achieved Rs 1000 Crore milestone. Further as a part of our commitment to provide our investors, simple and smart investment solution we are launching UTI S&P BSE Low Volatility Index Fund and we will continue to bring more such innovative, smart beta and simple investment solution for our investors.

Product Label

UTI S&P BSE Low Volatility Index Fund
(An open-ended scheme replicating/tracking the S&P BSE Low Volatility Index TRI)This product is suitable for investors who are seeking*:
• Capital growth in tune with the index returns
• Passive investments in equity instruments comprised in S&P BSE Low Volatility Index
(Product labelling assigned during the NFO is based on internal assessment of the scheme characteristics or model portfolio and the same may vary post NFO when the actual investments are made. *Based on the Index Composition as on January 11, 2022.)

Product Label

UTI Nifty200 Momentum 30 Index Fund
(An open-ended scheme replicating/tracking the Nifty200 Momentum 30 Index)
This product is suitable for investors who are seeking:
• Capital growth in tune with the index returns
• Passive investment in equity instruments comprised of Nifty200 Momentum 30 Index

Mutual Fund investments are subject to market risks. Read all scheme related documents carefully.