We cover two different types of mutual funds that might seem alike at first glance–Business Cycle Funds and Multi-Sector Rotation Funds.

The News

Recently, a mutual fund company has introduced India’s first Multi-Sector Rotation Fund.

Without getting too technical, the name itself hints at its approach: this fund will continuously rotate its investments among leading sectors, shifting focus based on economic conditions and macro trends.

But wait—haven’t we already have something that aims to do the same thing? Enter the Business Cycle Fund, an already established category with a similar game plan of capitalizing on sectoral shifts.

So, are these two funds different from one another? Or is this just a fresh label on an old bottle? Let’s take a closer look and find out.

Multi-Sector Rotation Fund

Since this is the first mutual fund company to offer this kind of fund, we have no other choice but to see how they are describing it.

As per the AMFI guidelines, the fund falls under the category of thematic fund, investing in sectors currently doing well and allowing investors to capture sectoral growth while avoiding prolonged exposure to underperforming areas.

And how would they do it, you ask? By deploying ‘quantamental’ approach.

Since this is the first mutual fund company to offer this kind of fund, we have no other choice but to see how they are describing it.

As per the AMFI guidelines, the fund falls under the category of thematic fund, investing in sectors currently doing well and allowing investors to capture sectoral growth while avoiding prolonged exposure to underperforming areas.

And how would they do it, you ask? By deploying ‘quantamental’ approach.

Now let’s understand the business cycle funds and how it differs.

Business Cycle Fund

The business cycle is like the economy’s swings. When things are good, people spend more, businesses grow, and jobs are plenty. This is the ‘good times’ phase.

Sectors such as financials and consumer discretionary (non-essential goods & services like cars, leisure and home electronics, furnishing, etc.) usually perform well.

But eventually, things slow down, people spend less, and businesses might cut back. That’s the ‘low’ phase. During this time, utilities and consumer essentials sectors tend to perform better.

So, the business cycle fund (also categorized as a thematic fund by AMFI) adjusts its investments based on the different phases of the economy, or ‘business cycle’, as it is called.

The business cycle is like the economy’s swings. When things are good, people spend more, businesses grow, and jobs are plenty. This is the ‘good times’ phase.

Sectors such as financials and consumer discretionary (non-essential goods & services like cars, leisure and home electronics, furnishing, etc.) usually perform well.

But eventually, things slow down, people spend less, and businesses might cut back. That’s the ‘low’ phase. During this time, utilities and consumer essentials sectors tend to perform better.

So, the business cycle fund (also categorized as a thematic fund by AMFI) adjusts its investments based on the different phases of the economy, or ‘business cycle’, as it is called.

The parallels

The underlying theme of both the funds is similar, actively position investments into sectors that are likely to perform better but with a different approach.

Multi-sector rotation funds stand out by using quantitative methods to select sectors and stocks. In contrast, business cycle funds leverage the fund manager’s experience and knowledge to navigate through the various phases of economic growth.

To conclude

While business cycle funds have existed for a long time now, will the quantitative approach of multi-sector rotation funds outshine it? We will have to wait and see.