NFO Pick – (Bandhan Multi-Factor Fund)

7 Jul 2025 , 09:58 AM

WHY INVEST IN A MULTI-FACTOR FUND?

A multi-factor fund is a mix of an active and passive approach and combines the 4 key factors of momentum, volatility, quality, and value in appropriate proportions. Here are the reasons for combining factors into a single portfolio.

• Momentum Theme has generally done very well when the markets are in a bullish phase; and momentum refers to the most recent performance.
• Low Volatility Theme has generally done better during bearish markets as they are able to hold value better in trying market conditions.
• Quality has once again done better during a bear phase as well as when the markets are shifting from a bull phase to bear phase.
• Value Theme, on the other hand, does best during the recovery when stocks exhibit deep value and also have the support to realize true values.

The trick here lies in not just knowing which theme does better in various conditions; but to tweak the portfolio accordingly with minimal tax implications. That is where a multi-factor factor fund with dynamic allocation comes in handy.

USING A QUANTITATIVE MODEL FOR THE MULTI-FACTOR FUND

Here is how you use data points as proxies to represent various factors as described above.

• Momentum is quantitatively measured with proxies like price momentum and earnings momentum.
• Value is quantitative measured with proxies like P/E ratio, P/BV ratio, Dividend Yield, DCF valuation, relative valuation etc.
• Low Volatility as a factor is measured with proxies like Sharpe ratio, Treynor ratio, Sortino Ratio, implied volatility etc.
• Finally, quality is measured by proxies like earnings quality, sales growth, inventory ratios, interest coverage ratio, leverage etc.

Once the ratios and the scenarios are identified, the fund uses a combination of top-down (factor-based) and bottom-up (stock-based) approaches for portfolio creation.

DOES A MULTI-FACTOR APPROACH DELIVER RESULTS?

We will use a back-testing approach here. Here are some quick findings.

• Since January 2015, the multi-factor allocation portfolio delivered 9.21X returns; compared to 3.74X by the BSE 200 TRI. It also beats other individual factors.
• Multi-factor model approach has given the best returns in 5 out of the last 11 years; in most cases doing substantially better than other indices.
• Overa a 5-year period, the multi-factor model has given higher CAGR returns with lower standard deviation. As a result, the multi-factor model beats on risk adjusted returns across various time frames.

More importantly,  even the probability of earning alpha is much higher with a multi-factor allocation model; compared to the index or to individual factors.

GLANCE AT THE BANDHAN MULTI-FACTOR FUND NFO

Here are key details of the Bandhan Multi-Factor Fund NFO.

• NFO opens on July 10, 2025 and closes on July 24, 2025. The objective of the fund is to use a dynamic approach of top down (factor selection) or bottom up (stock selection) such that the mix of factors (Quality, Momentum, volatility, value, size) is optimized.
• On the risk-o-meter, Bandhan Multi-Factor Fund is classified as “Very High Risk,” due to its substantial equity allocation and an active discretionary view on which factor should have the highest weightage in the portfolio.
• The Bandhan Multi-Factor Fund is best suited to investors looking to create wealth in the long run, through a more sophisticated and quantitative approach to generating enhanced risk-adjusted returns by tweaking the weightage of factors.
• Bandhan Multi-Factor Fund offers Regular and Direct plans. It also offers Growth option and IDCW option to investors. Rishi Sharma and Brijesh Shah will be the designated fund managers for the scheme. Fund performance is benchmarked to BSE 200 TRI.
• Minimum application amount in NFO is ₹1,000 and multiples of ₹1 thereof. Subsequent additional investments will be of minimum ₹500. The fund structure supports SIPs, SWPs, and STPs too; with basic SIP amount of ₹100 for minimum of 6 instalments.
• There is an exit load of 0.5% if redeemed within 30 days from the date of allotment. Any redemption beyond 30-days does not attract exit load. However, longer term is advised.

Bandhan Multi-Factor Fund is classified as an equity fund for tax purposes. Hence, LTCG will be taxed at 12.5% above ₹1,25,000 per financial year. STCG will be taxed at 20.8% (including cess). The cut off definition for long term will be a holding period of 1 year or more.