Business Cycle Mutual Funds: An Overview
Business cycle mutual funds are actively managed funds that adjust their investment strategies based on the different phases of the economic cycle: expansion, peak, contraction, and recovery. These funds aim to capitalize on the performance of various sectors that typically thrive in each stage of the cycle. For instance, during economic expansion, fund managers might allocate more assets to growth-oriented sectors like technology and consumer discretionary. Conversely, during a downturn, they might shift toward defensive sectors like utilities and healthcare.
The goal is to enhance returns and mitigate risks by adapting to changing economic conditions. Business cycle funds often require a higher expense ratio due to the expertise involved in analyzing economic trends and adjusting the portfolio accordingly. This makes them a suitable option for investors looking for dynamic exposure to market opportunities across different economic phases.
Business cycle fund follows a top-down investment approach. Bandhan will most likely take bolder bets by deviating substantially from the sector weightings of the Nifty 500 index. Not just sectors, but the fund can express its market views by taking market cap-specific bets as well. In a pessimistic market, large caps usually correct less than the small-mid caps. Conversely in a bull market, smaller companies may outperform the larger ones.
This fund can sit in your satellite portfolio with a small allocation. Because this is a high-risk fund, it is unsuitable for short-term goals as it may take longer than expected for some of the market cycles to play out. Those seeking alpha can start a smaller SIP or invest in lumpsum a small percentage of your overall portfolio.
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