Growth and dividend payouts: Exploring the core strategy of Bajaj Finserv Multi Asset Allocation Fund

When it comes to investing, some focus on companies offering growth potential. Others look for stocks that provide the potential for regular dividends. But what if you could combine both? The Bajaj Finserv Multi Asset Allocation Fund follows a strategy that blends growth with dividend payouts, aiming to enhance long-term return potential.

At the heart of this approach is identifying potential growth-oriented companies with a high dividend yield. These dividends, when reinvested, increase potential opportunities for compounding, which can result in better returns over time. 

Understanding dividend-yield investing

Dividend-yield investing is about choosing companies that have a track record of paying regular dividends, often at a higher rate than the broader market. These companies typically have strong business models, consistent cash flows, and a track record of profitability.

The dividend yield of a stock is calculated as:

Dividend yield = (Annual dividend per share / Current share price) × 100

For example, if a stock pays Rs. 10 as an annual dividend and its current price is Rs. 200, the dividend yield is 5%. A higher dividend yield suggests that a company returns more cash to its shareholders, which can be a sign of financial strength.

The Bajaj Finserv Multi Asset Allocation Fund focuses on stocks that pay higher dividends than the Nifty 50 index. 

The power of compounding

Dividends, when reinvested, can enhance long-term growth potential. This is because the reinvested amount is used to buy additional stocks and securities for the portfolio, increasing the investment base. Here’s how it works:

1. A company pays a dividend.

2. The fund reinvests this dividend to buy more units.

3. These additional units potentially generate their own returns over time.

4. This process repeats, creating a snowball effect.

Compounding can make a significant difference in wealth creation over the long term, as even small investments can help build wealth.

How the fund is structured

Multi asset allocation funds are mutual funds that invest in at least three asset classes, with a minimum 10% allocation to each asset class. The Bajaj Finserv Multi Asset Allocation Fund invests in equities, debt securities and gold. It may also invest in silver ETFs, REITs and InvITs. 

Why this strategy is suitable for long-term investors

The combination of growth-oriented investing and dividend reinvestment can be beneficial for long-term investors. Here’s why:

• Potential for higher long-term returns – Growth stocks provide opportunities for capital appreciation, while dividends add to returns.

• Compounding effect – Reinvested dividends can enhance wealth accumulation over time.

• Diversification – The fund spreads investments across equities, fixed income, commodities, and REITS and INVITS to manage risk.

• Flexibility in portfolio management – The fund manager has the discretion to adjust the portfolio based on market conditions, ensuring an optimal risk-reward balance.

Active management for optimised risk-reward balance

Unlike a passive strategy, where a fund follows an index, the Bajaj Finserv Multi Asset Allocation Fund is actively managed. This means the fund manager can make decisions based on market trends, economic conditions, and company fundamentals. Within the spectrum of active management, it follows a dynamic management approach, wherein the fund manager can flexibly adjust the allocation between three or more asset classes based on market conditions, provided it maintain a minimum allocation of 10% to each asset class. This allows the fund to adjust its allocation as potential opportunities arise, helping manage risk and optimise return potential.

Stock selection is based on key factors such as:

• Dividend track record – Preference for companies with a history of consistent dividend payments.

• Payout ratios – Looking at how much of a company’s earnings are distributed as dividends.

• Financial health – Assessing key financial metrics such as Return on Equity (ROE) and Return on Capital Employed (ROCE).

• Dynamic duration management – For the debt portion, securities are selected based on their maturities and the portfolio duration is adjusted in response to interest rate movements

• Hedge against volatility – The commodities allocation of the portfolio offers growth potential and can provide a hedge against the volatility of equities. 

For investors looking to optimise growth potential while balancing risk and diversifying across asset classes, the Bajaj Finserv Multi Asset Allocation Fund can be a suitable choice. Investors can choose between lumpsum and mutual fund SIP plan. Investments begin at Rs. 500 and in multiples of Re. 1/- thereafter for lumpsum and at Rs. 500 for Systematic Investment Plan (minimum six instalments).