Upgrading DMAS Portfolios with low-cost passive index funds

Our DMAS Portfolios are the heart of what we do here. At Daulat, we are constantly looking for ways to deliver exceptional investment results for our clients in a manner that will help them reach their financial goals faster. One of the ways to do that is by lowering costs.

Our portfolio changes are conducted well within the original asset allocation and we do not  take frequent active calls to beat the market. Instead, the reviews and changes are methods to enhance the efficiency of the portfolios thereby improving the expected long-term expected returns.

For the equities exposure of the DMAS portfolios, we are proposing the following changes:

Lower fees with passive large-cap exposure   

• Replacing the Axis Bluechip Fund with UTI Nifty50 Index Fund: Research has shown that it has become increasingly difficult for active fund managers in the large-cap space to generate alpha. This is because of the limited investible universe i.e. top 100 stocks by market cap and the fact these companies tend to be usually well-covered by analysts which leaves little if any, scope for information asymmetry.

Axis Bluechip Fund has a 60% portfolio overlap (source: Morningstar Advisor Workstation) with UTI Nifty50 Index Fund thereby providing the former’s fund manager with limited levers to pull.

UTI Nifty50 Index Fund’s fund-level feel is just 0.30% compared to Axis Bluechip’s 1.59%. This directly translates to a yearly cost savings of 1.29% which will have a positive bearing on the client’s overall return.

The lower cost and similar market exposure make it a clear winner.

Adding a dedicated mid-cap allocation

• Adding allocation to the PGIM India Midcap Opportunities Fund: We are taking a dedicated exposure to the mid-cap space by initiating a fresh position in the PGIM India Midcap Opportunities Fund. The fund has been a consistent top performer with a 3-year average rolling return of 29.28%.

Mid-cap funds are mandated to invest a minimum of 65% of their assets in mid-cap companies i.e. 101^st– 250^th companies in terms of market cap. Nifty Midcap 150 TRI has outperformed Nifty 50 TRI, 88% times on a 5-years rolling basis in the last 10 years with median outperformance being 2.64%.

While this category tends to be a bit more volatile than large-cap, they also recover quickly as and when the economy revives.

How to accept the recommended changes

Whenever we make any modifications to the DMAS portfolios, a Daulat client partner will reach out to you to explain the necessary changes. We understand that every client can also hold independent views on their personalized portfolios and thus can choose not to accept the suggestions – and we respect that.

If you do choose to accept it, the portfolio will be rebalanced accordingly. This means there will usually be subsequent additional purchases of either new funds or existing funds. All the purchases shall be met with the corresponding redemptions to adjust the portfolio to its intended asset allocation.

We do not anticipate having a very high-churn portfolio. This also ensures that the portfolios are tax-efficient and we are only making changes when our views on a particular sub-asset/asset class have evolved significantly from our original point-of-view.

The changes, if any, are effected at the end of every quarter.

Experience financial freedom with Daulat

The new DMAS Portfolios continue to be well-diversified across different market caps, regions, and styles of investing. Both of these changes combined will further reduce TER, improve diversification, and provide higher expected risk-adjusted returns.

We at Daulat here continually monitor your portfolios and look for opportunities to improve them. We understand the challenges and complexities of investing and meeting one’s financial goals and thus strive to always stay on top of it – so that you have one less thing to worry about!