In this enlightening conversation, Govind shares his expert perspective on the performance and philosophy behind the Finideas Growth Fund AIF (CAT III), offering valuable insights into risk management, long-short funds, and derivative options.
Govind, thanks for being part of the segment. Please take us through the performance of Finideas Growth Fund AIF (CAT III) so far in 2024 as well as in 2023.
The performance of the Finideas Growth Fund has been nearly on par with the index performance even after having a limited risk downside. We have outperformed the index in the last three months.
Please take us through the investment strategy of the fund.
The main philosophy of the Finideas Growth Fund AIF is to prioritize both protection and growth.
We achieve this by investing in the index with protection through the purchase of PUT (PE) options. Simultaneously, we engage in interest arbitrage by investing in futures.
Additionally, we allocate funds to debt instruments to generate high-interest income, enabling us to offset lower interest payments on futures.
Consequently, we aim to generate returns when the market rises while minimizing risk during market downturns.
It is a fairly complex instrument which is part of the investment strategy – how do you manage risk in the fund?
We believe that purchasing options is the smart work for protection. Therefore, we buy options to mitigate downside risk while simultaneously engaging in interest arbitrage to offset associated costs.
Overall, our approach results in limited downside risk and unlimited profit potential on the upside.
The category AIF fund is a long-short fund. For the interest of investors – what are long-short funds?
The objective of long-short funds is to generate returns on both sides of the market. It means that we can keep our view in the market on the bullish side as well as on the bearish side.
We are buying futures and equities to have upside earnings and simultaneously we are buying put options to generate returns on the downside market. This way, we have both a long and a short view on the market.
Your portfolio is tilted towards debentures, followed by equity and fixed income. Are debentures used to balance risk in the portfolio? How do you pick debentures for investment?
Yes, we invest in debentures, equity, and fixed-income sources. Our primary objective is to generate upside returns in equity, so we take twice the exposure in the index for potential gains.
To generate interest arbitrage income, we pay lower interest on futures and allocate funds to invest in debentures, fixed-income, or tax-free bonds. When selecting debentures for investment, we typically prioritize safety and tax advantages.
How do you pick stocks for your equity portfolio?
We believe in the index because it provides assurance that it won’t become zero; sooner or later, it rises.
To outperform the index, we keep double leverage in the index. Therefore, our selection of stocks for the equity portfolio depends on the structure of the index.
We are seeing a lot of froth being built in the small & midcaps space. Do you also feel the same?
Yes, we also feel that there has been a lot of froth built-in smallcap & midcap space.
What is your view on markets for FY25?
We anticipate heavy volatility in the market over the next 12-18 months due to various economic, financial, and political changes. However, our long-term outlook on the market remains very positive. We are bullish on India in the long term.
You also have derivative margin and derivative options in your portfolio. Please take us through that investment process of these two instruments.
Initially, we allocate funds to both equities and debt. Using these assets as margins, we take exposure in index derivatives on the bullish side while simultaneously ensuring protection against downside risks.
This strategy allows us to capitalize on market movements upward while mitigating the potential for significant losses during market downturns.
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