How do you build an efficient mutual fund portfolio?

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How to build Efficient Portfolios using Mutual
Funds?
Speaker Chirag Mehta, Senior Fund Manager,
Alternative Investments August , 2021
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Determine your Financial Goals, Risk Tolerance
Investment Horizon
Choose the right Mutual Fund category
Determine your Asset Allocation
Within the category, pick the right funds
Monitor Rebalance regularly
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Equities or Fixed Income or Gold?
How do you pick the winning asset class?
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Equities are Indispensable in order to beat
Inflation
Consumer Basket 1990 2000 2010 2015 2020 CAGR
TOTAL SPENDING PER ANNUM 23,759 68,923 151,279 280,064 427,619 10.1

Price of gold, INR/10 grams 3,409 4,528 18,268 26,335 50,104 9.4
Units ( Grams) of gold to consume my basket 70 152 83 106 85

BSE SENSEX 730 4,659 15,585 26,557 47,751 14.9
Units of BSE-30 Index to consume my basket 33 15 10 11 9

Fixed Deposit Basket Index Value (Value of initial investment Jan 1, 1990 1000) (SBI 1 Year Deposit Rate) 1,064 2,220 3,550 4,628 5,814 6.0
Units of FD Basket to consume my basket 22 31 43 61 73
Past performance may or may not sustained in
future Quarterly compounding and Tax rate on
Fixed Deposit assumed to be 30
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2020 A Reminder On Virtues Of Asset Allocation
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Past performance may or may not sustained in
future
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Asset Allocation Matters...
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There have been years when equity markets had a br
illiant run, years when only bonds were dependable
, and years when gold shined the brightest, and
these periods did not typically overlap
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Sensex 49 Sensex 49 Gold 26 Sensex 83 Gold 23 Gold 32 Sensex 28 Sensex 11 Sensex 32 Bonds 9 Bonds 13 Sensex 30 Gold 8 Gold 16 Gold 28 Sensex 11
Gold 20 Gold 16 Bonds 9 Gold 24 Sensex 19 Bonds 7 Gold 12 Bonds 4 Bonds 14 Sensex -4 Gold 11 Gold 5 Sensex 7 Sensex 14 Sensex 17 Bonds 1
Bonds 4 Bonds 7 Sensex -52 Bonds 4 Bonds 5 Sensex -24 Bonds 9 Gold -5 Gold -8 Gold -7 Sensex 3 Bonds 5 Bonds 6 Bonds 11 Bonds 12 Gold -3
Past performance may or may not sustained in
future The chart ranks the best to worst
performing indexes per calendar year from top to
bottom Data as of July 2021 Past performance
may or may not be sustained in future. Based on
SP BSE Sensex Domestic Gold prices and CRISIL
Composite Bond Fund Index Source Bloomberg
Imagine someone holding an all equity portfolio
in 2008, or holding none in the equity rally
that followed?
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Each Asset Serves a Role in a Portfolio Context
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GOLD Diversifies against macro events and a
store of value FIXED INCOME
Regular income and stability
EQUITY
Long term growth
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Combine Asset Classes for better Risk Adjusted
Returns
One assets down cycle is balanced by another
assets up cycle
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Risk-Return Equity Debt Gold Equity Debt Equity Debt Gold
CAGR 11.13 11.13 12.80 7.18 11.45
Annualized SD 9.37 13.45 22.02 3.27 17.34
Maximum Drawdown 0.21 0.36 0.56 0.06 0.25
Sharpe Ratio 0.524 0.365 0.299 0.293 0.302
Time frame is November 2004 to July 2021. The
period is taken from 2004 since the asset
allocation weights are calculated based on
normalizing the historical monthly equity and
debt indicators. Given the normalization time
frame used in the strategy, data availability for
certain parameters beyond the time frame analyzed
was a constraint. Compiled by Quantum
AMC Equity-Debt-Gold in ratio of 40-40-20.
Equity-Debt allocated in 60-40 range Based on
Sensex Index, Crisil Composite Bond Fund Index,
and Domestic Gold Prices Note Past performance
may or may not be sustained in the future
The most diversified strategy yields similar
returns with the lower volatility, compared to a
pure equity strategy
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A Simple Asset Allocation Strategy to Deal with
Market Cycles
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Using Hybrid funds for asset allocation
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Hybrid Fund Mandates Vary Widely
Investors need to reconcile what suits their Risk
Return profile
Type Allocation to Equity Allocation to fixed income Allocation to gold
Aggressive hybrid funds 65-80 20-35 0
Balanced hybrid funds 40-60 40-60 0
Conservative hybrid funds 10-25 75-90 0
Dynamic Asset allocation/Balanced Advantage funds 0-100 0-100 0
Multi Asset allocation funds 10-80 10-80 10-80
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The Missing Element .. Gold!
Gold is an effective portfolio diversifier
Type Allocation to Equity Allocation to fixed income Allocation to gold
Aggressive hybrid funds
Balanced hybrid funds
Conservative hybrid funds
Dynamic Asset allocation/Bala nced Advantage funds
Multi Asset allocation funds
Risk-Return Equity Debt Gold Equity Debt
CAGR 11.13 11.13
Annualized SD 9.37 13.45
Maximum Drawdown 0.21 0.36
Sharpe Ratio 0.524 0.365
Time frame is November 2004 to July 2021. The
period is taken from 2004 since the asset
allocation weights are calculated based on
normalizing the historical monthly equity and
debt indicators. Given the normalization time
frame used in the strategy, data availability for
certain parameters beyond the time frame
analyzed was a constraint. Compiled by Quantum
AMC Equity-Debt-Gold in ratio of 40-40-20.
Equity-Debt allocated in 60-40 range. Based on
Sensex Index, Crisil Composite Bond Fund Index,
and Domestic Gold Prices Note Past performance
may or may not be sustained in the future
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Investors favorite Aggressive hybrid funds
(erstwhile Balanced funds) are not as balanced
as perceived
Higher returns are accompanied with higher risks
CRISIL Hybrid 3565 - Aggressive Index SP BSE 30 TRI
Average annual return 12 14
Best year 75 118
Worst year -41 -58
of years with a loss 17 23
Source CRISIL, SP Time frame of data is 31st
July 2007 to 31st July 2021

• There has been a big divergence in investors
  perception of these funds and reality
• With minimum 65 allocation to equities,
  investing in these funds is as good as investing
• in a pure equity fund!
• Unsuitable for conservative investors looking to
  move out of FDs

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The Aggressive Hybrid category took on higher
risks, comparable to the Large cap equity
category, and failed to minimize downside. On the
other hand, the Multi Asset category of funds
gave better risk adjusted returns and minimized
the downside
Average category performance
200.00 150.00 100.00 50.00 0.00 -50.00
-100.00
03-Jan-05 To 10-May-06 To 14-Jun-06 To 08-Jan-08
To 09-Mar-09 To 05-Nov-10 To 20-Dec-11 To
03-Mar-15 To 25-Feb-16 To 14-Jan-20 To 23-Mar-20
To
10-May-06 14-Jun-06 08-Jan-08 09-Mar-09 05-Nov-10
20-Dec-11 03-Mar-15 25-Feb-16 Aggressive Hybrid
Fund
14-Jan-20 23-Mar-20 06-Aug-21 Large Cap
Fund Source Ace MF
Balanced Advantage
Multi Asset Allocation
Past performance may or may not be sustained in
the future Note Off late, performance
divergence between MAA category and other
Hybrid/Large cap category has been reducing on
account of Equity bias of most MAA funds
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Most Multi Asset Funds are also biased towards
Equities - Does that match your risk appetite?
Equity allocation in benchmark
Multi Asset Category Average 60
Multi Asset Category Maximum 70
Multi Asset Category Minimum 40
Multi Asset Fund of Funds 40
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QMAFOF Unbiased, dynamic asset allocation..
Equity allocation Sensex TRI
90000
65.00
60.00
75000
55.00
60000
50.00
45000
45.00
40.00
30000
35.00
15000
30.00
0
25.00
Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13
Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14
Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15
Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16
Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17
Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18
Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19
Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20
Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21
Data as of July 2021 Source Quantum MF Note
Past performance may or may not be sustained in
future
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True Multi Asset Funds shouldnt change styles -
may give less returns than other hybrid funds in
bull markets but importantly need to protect
downsides better
Average category returns
100.00 80.00 60.00 40.00 20.00 0.00 -2
0.00 -40.00
03-Mar-15 To 25-Feb-16 Bear Phase 25-Feb-16 To 14-Jan-20 Bull Phase 14-Jan-20 To 23-Mar-20 Bear Phase 23-Mar-20 To 06-Aug-21 Bull Phase
Aggressive Hybrid Fund
Balanced Advantage
Multi Asset Allocation
Source ACE MF Past performance may or may not be
sustained in future
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Plan for DIY investing
Short Term Needs 1-12 Months
Medium Term Needs 12-60 Months
Long Term Needs More than 60 Months
YOUR MONEY CYCLE
OBJECTIVE

• Safety of Principal critical
• Minimal volatility as one may need the money
  anytime

• Better Returns, but
• capital to be safe
• Little volatility to be expected

• Returns have to beat
• inflation
• Volatility can be blunted with time

Options to Consider

• Direct Equities
• Diversified Equity Mutual Funds
• Gold ETFs
• Real Estate
• EFP PPF

• Bank Fixed Deposit
• Bank Recurring Deposit
• Liquid / Money Market Funds
• Short Term Debt Funds

• Bank Fixed Deposits
• Debt Funds
• Multi Asset Funds
• Corporate Fixed Deposits

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Why choose Mutual funds for your equity
allocation
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There are 7800 listed Indian stocks and for a
retail investor to find quality picks is not an
easy task
No time/ inclination/ expertise to select stocks
Built-in diversification
Professional research management
Invest in mutual funds
Cost-Efficient
Can invest with limited capital via SIPs
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Probability of Choosing Underperforming Schemes
is High
Over the 5 year period from 2014 to 2019 we
observe that only 1 out of the top 5 performing
diversified equity funds of 2014 is still a top
performer in 2019
Category Number of funds still in top 5 five years later
Diversified Equity fund universe 1
Large Mid cap 2
Large cap 2
Mid cap 1
Multi cap 0
Small cap 2
Based on 5 year rolling returns of funds on 31st
December 2014 and 31st December 2019 Source Ace
MF
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Why choose an Equity Fund Of Fund
There are 44 Mutual Fund houses and 500 equity
mutual fund schemes to choose from No
time/inclination/ expertise to select mutual
funds?
Invest in a Fund Of Fund
Equity scheme A
Equity scheme B
Equity scheme C
Equity scheme D
Source https//www.sebi.gov.in/statistics/mutual-
fund/mf-investment-objectives.html
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Usual Mutual Fund Investing Process
550 Equity schemes

• Risk of selecting
• Wrong Philosophy
• Wrong Portfolio
• Hassles of transacting in and tracking multiple
  funds
• Depth and quality of research is questionable

Suggestions from Distributors Bank RMs Own
Research
6 8 Funds in your portfolio
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Investing in an Equity Fund of Funds

• Research based Fund selection

550 Equity schemes

• Funds with consistent performance across market
  cycles

• Balance between Risk Return
• Avoid Portfolio concentration

• Invest in diversified portfolio of Large and Mid
  Cap
• There is just one NAV to track and just one
  folio no hassles of making and tracking
  multiple investments

5 10 Funds in your portfolio
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Step 1 Filtration
Actively managed Equity Funds
No Sector Index Funds
Funds Disqualified
Diversified Equity Funds
With track record lt 3 years disqualified

• Diversified Equity Funds with a 3-Yr track record
• We see 3 year YoY returns, not CAGR
• At this stage the schemes are categorized as
  Large cap or Non Large cap
• Minimum 60 exposure to large caps required to be
  classified as Large cap scheme

• Top 5 stocks/holdings lt40 of the portfolio,
• Top 10 stocks/holdings lt60 of the portfolio
• Portfolio turnover lt100

Funds Disqualified
Selected list of funds
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Step 2 Scoring (Quantitative criteria)
Selected list of funds
Apply Phase I Quantitative criteria
Risk Adjusted Returns and Parameters Performance across Market Cycles Portfolio Valuation
Method Multiple parameters of risk adjusted returns that provide insights into performance of the fund with respect to the benchmark and peer comparison Each parameter provides us with some unique insight on fund managers performance and overall consistency Return Performance and Return consistency - We prefer fund managers who have participated in multiple market cycles and proved their mettle We also assign a fair share to the relative valuation attractiveness of the fund vis-à-vis its peer group
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Step 2 Scoring (Qualitative Criteria)
Selected list of funds
Apply Phase II Qualitative criteria
Investment Systems and Process Look for Red flags Consistency in Characteristics of the Portfolio
Method Detailed Questionnaire meetings Portfolio construction process Limit on exposure to a single stock or a particular sector Measurement against benchmark / peers tracking error What is the limit on cash holdings? Other Funds managed by the fund manager Back up on portfolio? Star fund manager risk Fund manager meetings provides us with an opportunity to verify if the Fund Manager walks the talks and we dont invest in funds where we see any red flags Subjective assessment Philosophy Strategy adherence Process orientation Team dependence Internal vs external research
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After Extensive Qualitative Quantitative
Research, a mix of 5-10 Funds are Selected
Step 1 Quantitative analysis
Scheme performance across time frames and
market cycles
stock concentration levels
Benefit from scale, research expertise, proven
processes, risk control of Quantum Mutual fund
risk- adjusted returns
Step 2 Qualitative analysis
Vs
fund houses investment systems and processes
consistency in characteristi cs of its
portfolio
Investing with limited resources and capabilities
Fund managers conviction
EFOF Portfolio
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Why Star Ratings aren't a Holistic way to pick
your Mutual Funds
While quantitative metrics do give you a good
understanding of the funds past performance,
the qualitative aspects would help you recognize
how a mutual fund scheme is likely to perform in
the future

Fund Category
Invesco India Growth Opportunities Fund Equity Large Mid cap
Principal Emerging Bluechip Fund Equity Large Mid cap
Canara Robeco Emerging Equities Fund Equity Large Mid cap
Kotak Flexi Cap Fund Equity Flexi Cap
UTI Flexi Cap Fund Equity Flexi Cap
Canara Robeco Blue-chip Equity Fund Equity Large Cap
Axis Blue chip Fund Equity Large Cap
Mirae Asset Large Cap Fund Equity Large Cap
Invesco India Midcap Fund Equity Mid cap
All schemes are Direct plan Growth option Data
as on 24th August 2021
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Unbiased Selection of Funds
There is no conflict of interest when selecting
portfolio funds commissions dont drive fund
selection - Equity FoF invests in direct plans
Equity FoF should ideally not invest in their own
funds to remove any perceived conflicts
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Indexation Benefits in taxation
Fund type Holding period for long term Short term Long term
Equity fund 1 year 15 10
Debt fund 3 years Slab rate 20 with indexation
The above calculation is for illustration purpose
only. Please consult your tax advisors with
respect to tax consequence.
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EFoF
portfolio
Want to Diversify but have Limited Capital?
Investing in schemes individually, by yourself
or through advisor
Rs. 3500- 7000 per month
Rs. 500 per month
vs
Exposure to 7 schemes or 200 stocks
Exposure to 7 schemes or 200 stocks
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Have you ever held on to underperformers for
longer than you should have or bailed too
quickly on a promising fund to chase current top
performers?
FOF has a well-defined review, monitoring exit
mechanism, and doesnt go about entering
and exiting funds in a non-scientific, haphazard
way
Chosen funds are reviewed on a continuous basis
using quantitative tools
Moreover, fund managers of portfolio funds are
met regularly to understand qualitative aspects
of their funds, something a retail investor
doesnt always have easy access to
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Want to exit an under performing scheme and
invest in a better performing one?
Since capital gains are taxed on each switch from
one mutual fund scheme to another, you will have
less capital being reinvested and compounding
every time you switch schemes
Rebalancing in EFoF portfolio
Rebalancing yourself or through advisor
vs
No Capital gains tax
Capital gains tax levied
HIGHER RETURNS
LOWER RETURNS
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A Simple Asset Allocation Strategy to Deal with
Market Cycles
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Disclaimer Terms of Use
The data in this presentation are meant for
general reading purpose only and are not meant to
serve as a professional guide/investment advice
for the readers. This presentation has been
prepared on the basis of publicly available
information, internally developed data and other
sources believed to be reliable. Whilst no action
has been suggested or offered based upon the
information provided herein, due care has been
taken to endeavor that the facts are accurate and
reasonable as on date. Quantum AMC shall make
modifications and alterations to the performance
and related data from time to time as may be
required as per SEBI Mutual Fund Regulations.
Readers are advised to seek independent
professional advice and arrive at an informed
investment decision before making any investment.
None of the Sponsors, the Investment Manager,
the Trustee, their respective Directors,
Employees, Affiliates or Representatives shall be
liable for any direct, indirect, special,
incidental, consequential, punitive or exemplary
damages, including lost profits arising in any
way from the data/information/opinions contained
in this presentation. The Quantum AMC shall make
modifications and alterations to the performance
and related data from time to time as may be
required. Please visit www.QuantumMF.com to
read scheme specific risk factors. Investors in
the Scheme are not being offered a guaranteed or
assured rate of return and there can be no
assurance that the schemes objective will be
achieved and the NAV of the scheme may go up and
down depending upon the factors and forces
affecting securities market. Investment in mutual
fund units involves investment risk such as
trading volumes, settlement risk, liquidity risk,
default risk including possible loss of capital.
Past performance of the sponsor / AMC / Mutual
Fund does not indicate the future performance of
the Scheme. Statutory Details Quantum Mutual
Fund (the Fund) has been constituted as a Trust
under the Indian Trusts Act, 1882. Sponsor
Quantum Advisors Private Limited. (liability of
Sponsor limited to Rs. 1,00,000/-). Trustee
Quantum Trustee Company Private Limited.
Investment Manager Quantum Asset Management
Company Private Limited. The Sponsor, Trustee
and Investment Manager are incorporated under the
Companies Act, 1956. 26th August 2021 Mutual
fund investments are subject to market risks,
read all scheme related documents carefully.
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Thank You
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