How do you build an efficient mutual fund portfolio?

1. How to build Efficient Portfolios using Mutual Funds? Speaker: Chirag Mehta, Senior Fund Manager, Alternative Investments August , 2021

2. Determine your Financial Goals, Risk Tolerance & Investment Horizon Choose the right Mutual Fund category Determine your Asset Allocation Within the category, pick the right funds Monitor & Rebalance regularly

3. Equities or Fixed Income or Gold? How do you pick the winning asset class?

4. Equities are Indispensable in order to beat Inflation Consumer Basket 1990* 2000 2010 2015 2020 CAGR TOTAL SPENDING PER ANNUM 23,759 68,923 151,279 280,064 427,619 10.1% Price of gold, INR/10 grams 3,409 4,528 18,268 26,335 50,104 9.4% Units ( Grams) of gold to consume my basket 70 152 83 106 85 BSE SENSEX 730 4,659 15,585 26,557 47,751 14.9% Units of BSE-30 Index to consume my basket 33 15 10 11 9 Fixed Deposit Basket Index Value (Value of initial investment Jan 1, 1990 =1000) (SBI 1 Year Deposit Rate)* 1,064 2,220 3,550 4,628 5,814 6.0% Units of FD Basket to consume my basket 22 31 43 61 73 Past performance may or may not sustained in future Quarterly compounding and Tax rate on Fixed Deposit assumed to be 30%

5. 5 2020: A Reminder On Virtues Of Asset Allocation Past performance may or may not sustained in future

6. 6 Asset Allocation Matters... There have been years when equity markets had a brilliant run, years when only bonds were dependable, and years when gold shined the brightest, and these periods did not typically overlap 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* Sensex 49% Sensex 49% Gold 26% Sensex 83% Gold 23% Gold 32% Sensex 28% Sensex 11% Sensex 32% Bonds 9% Bonds 13% Sensex 30% Gold 8% Gold 16% Gold 28% Sensex 11% Gold 20% Gold 16% Bonds 9% Gold 24% Sensex 19% Bonds 7% Gold 12% Bonds 4% Bonds 14% Sensex -4% Gold 11% Gold 5% Sensex 7% Sensex 14% Sensex 17% Bonds 1% Bonds 4% Bonds 7% Sensex -52% Bonds 4% Bonds 5% Sensex -24% Bonds 9% Gold -5% Gold -8% Gold -7% Sensex 3% Bonds 5% Bonds 6% Bonds 11% Bonds 12% Gold -3% Past performance may or may not sustained in future The chart ranks the best to worst performing indexes per calendar year from top to bottom *Data as of July 2021 Past performance may or may not be sustained in future. Based on S&P BSE Sensex; Domestic Gold prices and CRISIL Composite Bond Fund Index Imagine someone holding an all equity portfolio in 2008, or holding none in the equity rally that followed? Source: Bloomberg

7. 7 Each Asset Serves a Role in a Portfolio Context GOLD Diversifies against macro events and a store of value FIXED INCOME Regular income and stability EQUITY Long term growth

8. 8 Combine Asset Classes for better Risk Adjusted Returns One asset’s down cycle is balanced by another asset’s up cycle Risk-Return Equity +Debt +Gold * Equity + Debt ** Equity Debt Gold CAGR 11.13% 11.13% 12.80% 7.18% 11.45% Annualized SD 9.37% 13.45% 22.02% 3.27% 17.34% Maximum Drawdown 0.21 0.36 0.56 0.06 0.25 Sharpe Ratio 0.524 0.365 0.299 0.293 0.302 Time frame is November 2004 to July 2021. The period is taken from 2004 since the asset allocation weights are calculated based on normalizing the historical monthly equity and debt indicators. Given the normalization time frame used in the strategy, data availability for certain parameters beyond the time frame analyzed was a constraint. Compiled by Quantum AMC *Equity-Debt-Gold in ratio of 40-40-20. **Equity-Debt allocated in 60-40 range Based on Sensex Index, Crisil Composite Bond Fund Index, and Domestic Gold Prices Note: Past performance may or may not be sustained in the future The most diversified strategy yields similar returns with the lower volatility, compared to a pure equity strategy

9. A Simple Asset Allocation Strategy to Deal with Market Cycles

10. Using Hybrid funds for asset allocation

11. Hybrid Fund Mandates Vary Widely Investors need to reconcile what suits their Risk – Return profile Allocation to fixed income Type Allocation to Equity Allocation to gold Aggressive hybrid funds 65-80 20-35 0 Balanced hybrid funds 40-60 40-60 0 Conservative hybrid funds 10-25 75-90 0 Dynamic Asset allocation/Balanced Advantage funds 0-100 0-100 0 Multi Asset allocation funds 10-80 10-80 10-80

12. The Missing Element .. Gold! Gold is an effective portfolio diversifier Allocation to Equity Allocation to fixed income Allocation to gold Type Risk-Return Equity +Debt +Gold * Equity + Debt ** Aggressive hybrid funds CAGR 11.13% 11.13% Balanced hybrid funds Annualized SD 9.37% 13.45% Maximum Drawdown 0.21% 0.36% Conservative hybrid funds Sharpe Ratio 0.524 0.365 Dynamic Asset allocation/Bala nced Advantage funds Time frame is November 2004 to July 2021. The period is taken from 2004 since the asset allocation weights are calculated based on normalizing the historical monthly equity and debt indicators. Given the normalization time frame used in the strategy, data availability for certain parameters beyond the time frame analyzed was a constraint. Compiled by Quantum AMC *Equity-Debt-Gold in ratio of 40-40-20. **Equity-Debt allocated in 60-40 range. Based on Sensex Index, Crisil Composite Bond Fund Index, and Domestic Gold Prices Note: Past performance may or may not be sustained in the future Multi Asset allocation funds

13. Investors’ favorite Aggressive hybrid funds (erstwhile Balanced funds) are not as balanced as perceived Higher returns are accompanied with higher risks CRISIL Hybrid 35+65 - Aggressive Index 12% 75% -41% 17% S&P BSE 30 TRI Average annual return Best year Worst year % of years with a loss 14% 118% -58% 23% Source: CRISIL, S&P Time frame of data is 31stJuly 2007 to 31stJuly 2021 There has been a big divergence in investor’s perception of these funds and reality With minimum 65% allocation to equities, investing in these funds is as good as investing in a pure equity fund! Unsuitable for conservative investors looking to move out of FDs • • •

14. The Aggressive Hybrid category took on higher risks, comparable to the Large cap equity category, and failed to minimize downside. On the other hand, the Multi Asset category of funds gave better risk adjusted returns and minimized the downside Average category performance 200.00 150.00 100.00 50.00 0.00 -50.00 -100.00 03-Jan-05 To 10-May-06 10-May-06 To 14-Jun-06 14-Jun-06 To 08-Jan-08 08-Jan-08 To 09-Mar-09 09-Mar-09 To 05-Nov-10 05-Nov-10 To 20-Dec-11 20-Dec-11 To 03-Mar-15 03-Mar-15 To 25-Feb-16 25-Feb-16 To 14-Jan-20 14-Jan-20 To 23-Mar-20 23-Mar-20 To 06-Aug-21 Aggressive Hybrid Fund Balanced Advantage Multi Asset Allocation Large Cap Fund Source: Ace MF Past performance may or may not be sustained in the future Note: Off late, performance divergence between MAA category and other Hybrid/Large cap category has been reducing on account of Equity bias of most MAA funds

15. Most Multi Asset Funds are also biased towards Equities - Does that match your risk appetite? Equity allocation in benchmark 60 Multi Asset Category Average 70 Multi Asset Category Maximum 40 Multi Asset Category Minimum Multi Asset Fund of Funds 40

16. QMAFOF: Unbiased, dynamic asset allocation.. Equity allocation Sensex TRI 65.00% 90000 60.00% 75000 55.00% 60000 50.00% 45.00% 45000 40.00% 30000 35.00% 15000 30.00% 25.00% 0 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 Apr-21 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Oct-20 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 Feb-21 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21 Data as of July 2021; Source: Quantum MF Note: Past performance may or may not be sustained in future

17. True Multi Asset Funds shouldn’t change styles - may give less returns than other hybrid funds in bull markets but importantly need to protect downsides better Average category returns 100.00 80.00 60.00 40.00 20.00 0.00 -20.00 -40.00 03-Mar-15 To 25-Feb-16 25-Feb-16 To 14-Jan-20 14-Jan-20 To 23-Mar-20 23-Mar-20 To 06-Aug-21 Bear Phase Bull Phase Bear Phase Bull Phase Aggressive Hybrid Fund Balanced Advantage Multi Asset Allocation Source: ACE MF Past performance may or may not be sustained in future

18. Plan for DIY investing Short Term Needs 1-12 Months Medium Term Needs 12-60 Months Long Term Needs More than 60 Months YOUR MONEY CYCLE OBJECTIVE • Safety of Principal critical • Minimal volatility as one may need the money anytime • Better Returns, but capital to be safe • Little volatility to be expected • Returns have to beat inflation • Volatility can be blunted with time Options to Consider • Direct Equities • Diversified Equity Mutual Funds • Gold ETFs • Real Estate • EFP & PPF • Bank Fixed Deposit • Bank Recurring Deposit • Liquid / Money Market Funds • Short Term Debt Funds • Bank Fixed Deposits • Debt Funds • Multi Asset Funds • Corporate Fixed Deposits

19. Why choose Mutual funds for your equity allocation

20. There are ~7800 listed Indian stocks and for a retail investor to find quality picks is not an easy task No time/ inclination/ expertise to select stocks Built-in diversification Professional research & management Invest in mutual funds Cost-Efficient Can invest with limited capital via SIPs

21. Probability of Choosing Underperforming Schemes is High Over the 5 year period from 2014 to 2019 we observe that only 1 out of the top 5 performing diversified equity funds of 2014 is still a top performer in 2019 Number of funds still in top 5 five years later Category Diversified Equity fund universe 1 Large & Mid cap 2 Large cap 2 Mid cap 1 Multi cap 0 Small cap 2 Based on 5 year rolling returns of funds on 31stDecember 2014 and 31stDecember 2019 Source: Ace MF

22. Why choose an Equity Fund Of Fund There are 44 Mutual Fund houses and ~500 equity mutual fund schemes to choose from* No time/inclination/ expertise to select mutual funds? Invest in a Fund Of Fund Equity scheme A Equity scheme B Equity scheme C Equity scheme D Source: https://www.sebi.gov.in/statistics/mutual-fund/mf-investment-objectives.html

23. Usual Mutual Fund Investing Process ~550 Equity schemes Risk of selecting • Wrong Philosophy • Suggestions from Distributors & Bank RMs Wrong Portfolio • Hassles of transacting in and tracking multiple funds • Own Research • Depth and quality of research is questionable 6 – 8 Funds in your portfolio

24. Investing in an Equity Fund of Funds Research based Fund selection • ~550 Equity schemes Funds with consistent performance across market cycles • Balance between Risk & Return • Avoid Portfolio concentration • Invest in diversified portfolio of Large and Mid Cap • There is just one NAV to track and just one folio – no hassles of making and tracking multiple investments • 5 – 10 Funds in your portfolio

25. Step 1: Filtration Actively managed Equity Funds Funds Disqualified No Sector & Index Funds Diversified Equity Funds With track record < 3 years disqualified Diversified Equity Funds with a 3-Yr track record • We see 3 year YoY returns, not CAGR At this stage the schemes are categorized as Large cap or Non Large cap Minimum 60% exposure to large caps required to be classified as Large cap scheme • • Top 5 stocks/holdings <=40% of the portfolio, Top 10 stocks/holdings <=60% of the portfolio Portfolio turnover <=100% • • • Funds Disqualified Selected list of funds

26. Step 2: Scoring (Quantitative criteria) Selected list of funds Apply Phase I Quantitative criteria Risk Adjusted Returns and Parameters Performance across Market Cycles Portfolio Valuation Multiple parameters of risk adjusted returns that provide insights into performance of the fund with respect to the benchmark and peer comparison Each parameter provides us with some unique insight on fund managers performance and overall consistency Return Performance and Return consistency - We prefer fund managers who have participated in multiple market cycles and proved their mettle We also assign a fair share to the relative valuation attractiveness of the fund vis-à-vis its peer group Method • •

27. Step 2: Scoring (Qualitative Criteria) Selected list of funds Apply Phase II Qualitative criteria Investment Systems and Process Look for Red flags Consistency in Characteristics of the Portfolio Detailed Questionnaire & meetings Portfolio construction process Limit on exposure to a single stock or a particular sector Measurement – against benchmark / peers – tracking error What is the limit on cash holdings? Other Funds managed by the fund manager Back up on portfolio? ‘Star’ fund manager risk Fund manager meetings provides us with an opportunity to verify if the Fund Manager walks the talks and we don’t invest in funds where we see any red flags Subjective assessment Method • • Philosophy Strategy adherence Process orientation Team dependence Internal vs external research • • • • • • • • •

28. After Extensive Qualitative & Quantitative Research, a mix of 5-10 Funds are Selected Step 1: Quantitative analysis Scheme performance across time frames and market cycles stock concentration levels Benefit from scale, research expertise, proven processes, risk control of Quantum Mutual fund risk- adjusted returns Step 2: Qualitative analysis Vs fund house’s investment systems and processes consistency in characteristi cs of its portfolio Investing with limited resources and capabilities Fund managers conviction EFOF Portfolio

29. Why Star Ratings aren't a Holistic way to pick your Mutual Funds While quantitative metrics do give you a good understanding of the fund’s past performance, the qualitative aspects would help you recognize how a mutual fund scheme is likely to perform in the future Fund Category Invesco India Growth Opportunities Fund Principal Emerging Bluechip Fund Canara Robeco Emerging Equities Fund Kotak Flexi Cap Fund UTI Flexi Cap Fund Canara Robeco Blue-chip Equity Fund Axis Blue chip Fund Mirae Asset Large Cap Fund Invesco India Midcap Fund Equity: Large & Mid cap Equity: Large & Mid cap Equity: Large & Mid cap Equity: Flexi Cap Equity: Flexi Cap Equity: Large Cap Equity: Large Cap Equity: Large Cap Equity : Mid cap All schemes are Direct plan – Growth option Data as on 24thAugust 2021

30. Unbiased Selection of Funds There is no conflict of interest when selecting portfolio funds – commissions don’t drive fund selection - Equity FoF invests in direct plans Equity FoF should ideally not invest in their own funds to remove any perceived conflicts

31. Indexation Benefits in taxation Fund type Holding period for long term 1 year 3 years Short term Long term Equity fund Debt fund 15% 10%* 20% with indexation Slab rate The above calculation is for illustration purpose only. Please consult your tax advisors with respect to tax consequence.

32. Want to Diversify but have Limited Capital? Investing in schemes individually, by yourself or through advisor EFoF portfolio Rs. 3500- 7000 per month Rs. 500 per month vs Exposure to 7 schemes or 200+ stocks Exposure to 7 schemes or 200+ stocks

33. Have you ever held on to underperformers for longer than you should have or bailed too quickly on a promising fund to chase current top performers? FOF has a well-defined review, monitoring & exit mechanism, and doesn’t go about entering and exiting funds in a non-scientific, haphazard way Chosen funds are reviewed on a continuous basis using quantitative tools Moreover, fund managers of portfolio funds are met regularly to understand qualitative aspects of their funds, something a retail investor doesn’t always have easy access to

34. Want to exit an under performing scheme and invest in a better performing one? Since capital gains are taxed on each switch from one mutual fund scheme to another, you will have less capital being reinvested and compounding every time you switch schemes Rebalancing in EFoF portfolio Rebalancing yourself or through advisor vs No Capital gains tax Capital gains tax levied HIGHER RETURNS LOWER RETURNS

35. A Simple Asset Allocation Strategy to Deal with Market Cycles

36. Disclaimer – Terms of Use The data in this presentation are meant for general reading purpose only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required as per SEBI Mutual Fund Regulations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. None of the Sponsors, the Investment Manager, the Trustee, their respective Directors, Employees, Affiliates or Representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the data/information/opinions contained in this presentation. The Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required. Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme. Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-). Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956. 26thAugust 2021 Mutual fund investments are subject to market risks, read all scheme related documents carefully.

37. Thank You 37