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Dsp Equity Savings Fund
1. [Title to come]
[Sub-Title to come]
Strictly for IntendedRecipients Only
Date
* DSP India Fund is the Company incorporated in Mauritius,under which ILSF is the corresponding share class
November 2021
| People | Processes | Performance |
Equity Savings Fund
2. 2
Desirable Fund Characteristics …
If you could invest in only one Fund,hypothetically,fora decade or more, which of the
followingcharacteristics would you want that Fund to have?
Targeting
Lower
Drawdowns
Limiting Risk of
Permanent
Loss of Capital
Counter
Cyclical
Approach
Focus on
Absolute
Returns
Multi-Asset
Portfolio
Seeking
Returns Higher
of Benchmark
orInflation
3. 3
DSP Equity Savings Fund
Targeting
Lower
Drawdowns
Limiting Risk
of
Permanent
Loss of
Capital
Counter
Cyclical
Approach
Focus on
Absolute
Return
Multi-Asset
Portfolio
Seeking
returns
Higher of
Benchmark
orInflation
DSP Equity
Savings
Fund
Disclaimer: This fund is positioned to have above
characteristics. However, there is no guarantee that this
fund achieves the same all the time. Investors are
requested to seek appropriate professional advice. Read
offer documents before investing.
4. 4
What is DSP Equity Savings Fund (ESF)
Source: Internal.
DSP Equity Savings Fund seeks to provide capital appreciation with lower volatility
Participatein equity markets
Provides growth potential
Risk similar to that of an equity
fund
Hedged equity exposure
Takes advantageof market
inefficiencies
Intends to capturesspreads
betweencash and derivatives
market
Debt and money market
securities
RelativelyLow volatility
Possibility of stable returns
compared to Equity
Equity
20%-40%
Cash Future
Arbitrage
25%-55%
Debt
15%-35%
(INVIT/REITS 0% to 10%)
Option of <25% Global Equity
Gross equityexposure:
>65%
EquityTaxation
5. 5
Equity: Exposure & Hedging
MINIMUM
No Hedging
0% 40%
1. FUNDAMENTAL FACTOR
Based on Market Valuations
2. TECHNICAL SIGNALS
Based on Market Momentum
3. Hedging Ratio
Determinesthe number of out-of-
the-moneyPutoptions the fund will
holdto hedge the equityportion
MAXIMUM
Fully Hedged
• Equityexposure limit:20% to 40% (ex of Arbitrage)
• Current strategyis to holdEquity constant between35% to 40% while hedgingusingout of the moneyPut options.
• The exposure to be hedgedis determinedbya systematicstrategybased on market valuationsand technicals.The strategy has
beenback testedand is expectedtoprovidesbetterriskreturn profile thanunhedgedequity.
Disclaimer: The strategy / investment approach / framework mentioned herein is currently followed by the scheme and the same may change in
future depending on market conditions and other factors.
6. 6
Equity Hedging
• OTM (Out of the Money) NIFTY Index Putoptions are usedto hedgedequityportion.The numberof PUT options (hedging
ratio) is dependentonmarket valuationsand momentum.These options are bought basedon our model,on everyFutures&
Optionsexpirydate (Last Thursdayof everymonth).
• Illustration(actual numberscould be different)
• Assumptions:1. 5% OTM NiftyPUT optionis used to hedge 2. EquityPortfolioReturnis similarto Nifty3. The PUT costs 0.5%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
19.5%
14.5%
9.5%
4.5%
-0.5%
-5.5% -5.5% -5.5% -5.5% -5.5% -5.5%
Nifty 1M
Return
(F&O
Expiry to
Expiry)
20% 15% 10% 5% 0% -5% -10% -15% -20% -25%
Unhedged Portfolio Return Hedged Portfolio Return
Disclaimer: The above graph is just for illustration purpose and based on assumptions. Actual scenario could be different and based on many
factors. There is no assurance of any returns/capital protection/capital guarantee to the investors in this scheme or fund.
7. 7
When will Hedges be Ineffective
1. When portfolio significantlyunderperforms the Index
The hedges will protect only to the extent the Index falls. If the portfoliocrasheswhile Index is stable the
hedges wouldbe ineffective
2. If there is slow and steady fall in Index
If for example the index falls about 5% every monthandwe are using 5% OTMPuts to hedge then on each
expiry these puts expire worthless andprovide no protection. The PUTs usually helpin case of sharpcrashes
to the extent of the hedged portfolio.We might not be hedged at all in case the market crashes fromfairor
inexpensive valuations.
<-10% -10% to -5% -5% to 0% 0% to 5% 5% to 10% >10%
5 24 48 64 37 14
0
10
20
30
40
50
60
70
Distributionof Monthly Nifty Returns (Expiry to Expiry Jan-2005 to
Dec-2020)
Hedgingmight helpin these instances
Number of months outof total of 192 wherethereturns havebeen in the
bracketmentioned above
Back
Disclaimer: Past performance may
or may not sustain in future and
should not be used as a basis for
comparison with other
investments.
8. 8
Limiting Risk of Permanent Loss of Capital
HEDGE HIGHER
RISK SEGMENT
CONSERVATIVE PORTFOLIO
CONSTRUCTION
DIVERSIFICATION
Focus onvaluations,marginof
safety andminimizing downside
risks
Use a systematic options
hedging strategy to hedge
the equity portion when
market valuations appear
stretched
Exposure to LongOnly
Equity, Debt, REITS/INVITS
Back
Disclaimer: Margin of Safety in our opinion in difference between Intrinsic Value and Market Price of the businesses.
It should not not construed as safety of the return in the above mentioned scheme/Fund.
9. 9
Targeting Lower Drawdowns
With long investment horizons,why focus on lowering drawdowns at all?
High Drawdown:
Investor questions the investment. Fund
manager questions framework and
strategy.
Bothoftenendup acting unnecessarily,
hurting returns
LowDrawdown:
Canhelp investorinstayingpatient and
invested.
Canhelp Fund Manager in avoiding
unnecessary churn and strategy changes
10. 10
Targeting Lower Drawdowns
How does DSP Equity Savings Fund TargetLower Drawdowns?
Equity
Arbitrage
Debt/REITS/INVITS
Equity
Market Valuations Hedging
High FullyhedgedwithOTM Put Options
Potential to provide accrual income
Potential to provide accrual income and likelyto help to compensate for equity
volatility
Back
11. 11
Counter Cyclical Approach
Equity
Market Valuations Hedging
High FullyhedgedwithOTM Put Options
Moderate PartiallyHedged
Low Not Hedged
1. Conservative when Equity Valuations are High and Aggressive when Equity Valuations
are Low
Equity fallFrom Peak Equity Exposure (Assumingno
benefit from hedging)
Rest Incrementalallocation
to equity to get to 40%
0% 40% 60% 0%
25% 33% 66% 6.3%
50% 25% 75% 15%
2. Falling share of Equityin a Hybrid Fund as market falls leads to rebalance mechanism
where the Fund buys more equity in event of sharp falls
3. Option to add global equity in case of sharp fall in global markets
Debt
YieldsHigh YieldsLow
Moderate DurationPortfolio(3 to 5
Years)
Low Duration Portfolio(1 year)
Back
12. 12
Multi Asset Portfolio
Equity
Arbitrage
Debt/REITS/INVITSlbal
Equity
Objective: Capital Appreciation
Objective: Potential to provide Accrual Income
Objective: DEBT can provide stability and accrual income, REITS/INVITS can end
up providing higher yieldthan DEBT
Global Equity<lobal Equity
Geographical Diversification
Opportunistic allocation in case valuation and risk-return profile favourable
Back
13. 13
Focus on Absolute Returns
1. Focuson limiting the risk of permanent loss of capital
2. Focuson generatingabsolute return over cycles with good risk/return profile
3. Businesses are evaluated on basis on its ability to generate Inflationbeating returns
on a long-term horizon based on conservative assumptions
4. Willingness to underperform benchmarks in sharp bull markets due to focuson risk
management
5. Relatively concentratedportfolioof approximately20 stocks
Back
Disclaimer: There is no assurance of any returns/capital protection/capital guarantee to the investors in above
mentioned scheme/Fund.
14. 1. FirstObjective:Limit the Risk of PermanentLoss of Capital
Diversification
Focuson limiting downside risk
Conservative portfolio construction
Counter Cyclical Allocation
2. SecondObjective:BeatInflation
Allocation to Invits/Reits
Debt/Arbitragecan provide accrualincome
Currency diversificationand opportunisticexposureto global equity
3. Third Objective:BeatBenchmark assumingit’s beating inflation
Avoiding large drawdownsand accidents by hedging and countercyclical
positioning in both Debt and Equity
Increase allocationin Equities by adding global equities when they are available at
relative cheaper valuations at favorablerisk-return odds
14
Seeking Returns Higher of Benchmark or Inflation
Back
15. 15
What is the risk/return profile of DSP ESF?
DSP Equity Savings Fund’s risk/return profile is similar to a ModerateHybrid Fund
LIQUID / LOW
DURATION FUNDS
DURATION/
INCOMEFUNDS
SMALL &MIDCAP
FUNDS/SECTORAL
FUNDS
Less risk than equityfunds,could earn
Greater returns than debt funds
RISK
MULTICAP FUNDS
HYBRIDFUNDS
DSP EQUITY
SAVINGSFUND
EXPECTED
RETURN
16. 16
Equity: Entry Process
Can the business be held for 10 years?
• Itmeans atthispointthereisno reason to believewemighthaveto sell
before10 years
• Does notmean wewill necessarily continueholdingfor10 years
Are the embedded valuations conservative?
• Is thestock availableata pricewherewecan makeInflation +
approximately 10%even on conservativeexpectations of futuregrowth &
profitability
Yes
Yes
Is the downsidelow?
• In caseof adversebusinessdevelopmentsisthedownsidelimited?
• Wearelookingatlossintheintrinsicvalueof thebusinessnotquoted value
which could bevolatile
Long Term Orientation,
TypicallyNo Allocationto
Cyclicals
Value Bias
Value = IntrinsicValue -
Price
Absolute Return
Approach
BUY
Since quality
companiesare easier
to value due to
durabilityof their
business,
predictabilityof cash
flows,and lowertail
risks theyusuallyform
a large part of the
portfolio.
But the portfolio
generallyhasa Value
bias and may not have
Quality/Growthor
Momentum bias.
Entry will typicallynot
be from 30% of the
most expensive stocks
in the market (based
on our internal
quantitative
parameters)
Yes
17. 17
Valuation Approach
Source:Internal
Low Multiples,
Peak of Business
Cycle
High Multiples,
Peak of Business
Cycle
Low Multiples,
Bottomof the
Business Cycle
High Multiples,
and Bottomof
the Business
Cycle
Business
Cycle
Valuation Multiples
Best Ideas. Possibility of
bothearnings growth
and multiple rerating
Multiples look high but
should consider normalized
earnings. Valuations could
still be cheap
Exit. Avoid
Hold. Track momentumin
fundamentals.
Valuation multiplesshould be looked at in context of the Business Cycle
18. 18
Equity: Exit Process
Source:Internal
Is a better risk return availableelsewhere?
• The best reason to sell
Price factoring in overly aggressive
assumptions?
• Is the stockexpected to deliver<Inflation +approximately10%based on
even aggressive assumptionsoffuturegrowth and profitability
Or
Was the Thesis Wrong?
• Has new information or businessdevelopmentsmateriallychanged the
initialhypothesis
Or
More tolerant of over-valuation in exit decisions (to compensate for value bias in entry)
19. 19
Performance Scorecard
Source: MFIE; Scheme Benchmark – 30% Nifty 500 TRI + 70% CRISIL Liquid Fund Index. Returns are as on Oct 30, 2021 for Regular plan, Growth Option.
Inception date – Mar 28,2016. Click here for scheme performance of above Scheme in SEBI prescribed format and of other schemes managed by same Fund
Managers. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments. It is not possible
to investdirectly in an index.
POINT-TO-POINT RETURNS
Time Period DSP Equity Savings Fund 30% Nifty 500 TRI + 70% CRISIL Liquid
Fund Index
1 Year 21.18% 18.56%
3 Year 10.27% 10.69%
5 Year 7.60% 9.58%
Since inception 8.83% 10.17%
20. 20
Portfolio Positioning
Source: Internal. Data as on Oct 31, 2021. The sector(s)/stock(s)/issuer(s) mentioned herein do not constitute any research report/recommendation of the
sameand the scheme/ Fund may or may not haveany future position inthesesector(s)/stock(s)/issuer(s).
Long Equity,
36.6%
Arbitrage,
29.0%
Put options *,0.3%
InvITs,7.8%
Debt, 24.6%
Cash,1.8%
* Nifty 17300 Put with Nov 2021 expiry with notional exposureof ~35% of AUM
21. 21
Disclaimers & Product Labelling
This document is for information purposes only. In this material DSP Investment Managers Private Limited (the AMC) has used information that is publicly available, including
information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The statements contained herein may include statements
of future expectations and other forward looking statements that are based on prevailing market conditions / various other factors and involve known and unknown risks and
uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. While utmost care has been
exercised while preparing this document, the AMC nor any person connected does not warrant the completeness or accuracy ofthe information and disclaims all liabilities, losses
and damages arising out of the use of this information. The recipient(s) before acting on any information herein should make his/their own investigation and seek appropriate
professional advice. The portfolio ofthe scheme is subject to changes within the provisions of the offer documents of the scheme. Past performance may or may not sustain in
future and should not be used as a basis for comparison with other investments. The sector(s)/stock(s)/issuer(s) which are currently part of portfolio do not constitute any
research report/ recommendation of the same and scheme/ Fund may or may not have any future position in these sector(s)/ stock(s)/issuer(s). The investment approach /
framework/ strategy mentioned herein is currently followed by the scheme(s) and the same may change in future depending on market conditions and other factors. All
opinions and data included in this presentation are as on 31 Oct 2021 (unless otherwise mentioned) and are subject to change without notice. There is no assurance of any
returns/capital protection/capital guarantee to the investors in this scheme of DSP Mutual Fund. For scheme specific risk factors, load structure, Investment strategy, detailed
asset allocation structure and more details, please read the Scheme Information Document and Key Information Memorandum ofrespective scheme available on ISC of AMC and
also availableon www.dspim.com. For Index disclaimer click here
Large-caps are defined as top 100stocks on market capitalization, mid-caps as 101-250 , small-caps as 251 and above.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Scheme Product Suitability
Riskometer
DSP Equity Savings Fund Benchmark - 30% Nifty500 TRI +
70% CRISIL Liquid Fund
Index
DSP EquitySavings
Fund
(An open ended scheme
investingin equity,
arbitrageanddebt)
This Schemeissuitablefor investorwho are
seeking*
o Longterm capital growth and income
o Investmentin equity and equityrelated
securitiesincludingtheuseof equity
derivativesstrategiesand arbitrage
opportunitieswith balanceexposurein
debtand money marketInstruments
*Investors should consult their financial advisers ifin doubt about whether the Scheme is suitable for them.