“Fund philosophy: Winning through volatility”,
Beautifully sums up the entire Volvin Philosophy.Like a surfer who is adept at riding the waves and uses them to propel him forward, the Volvin philosophy can be described as “winning through volatility”. Both “Winning” and “Volatility” are equally important & integral to the whole philosophy.
Indian options trading market boasts of having the highest volumes in the world. The speculators use options in a big way to speculate in the market. The option buyers pay a premium of approximately 2.5-5.0% per month for these stock options. Volvin Philosophy benefits from selling these call options on the underlying portfolio and collecting the option premiums or “monthly winnings” which we have now coined as Equity Rentals. On an annualised basis this 2.5-5.0% translates into potential returns of 30-60%. The fund aims to capture the maximum quantum of these huge premiums paid by the speculators.
The philosophy has both passive and active sides to it. On the Equity long side, fundamental research is the paramount factor for stock selection and the fund is very passive with low portfolio turnover. The stocks are carefully picked keeping in mind the valuation parameters PE, Price to Book, growth prospects & dividend yield.
The derivatives segment is used to write Covered Call options on the underlying portfolio, thereby generating positive monthly returns or “winnings”, irrespective of the market movement. The fund tries to capitalize on the volatility in the market by using short-term volatility to add position and also earn higher income from Covered Calls due to an increase in VIX or option premiums.
The Derivatives segment is hence used to create monthly winnings by selling Call options, for hedging the portfolio, and also for profit booking of investments.
During the calendar years 2022 & 2023, the average variation in high & low of these F&O stocks was 59% & 83% respectively. This movement or so-called volatility is much higher than the 12-15% annualized returns expected from Indian Equity. Thus the case for monitoring technical charts, stock movement, volatility, and trying to benefit from these.
Investment objective
The investment objective of the Fund is to invest in listed Indian securities, primarily those featuring in the F&O segment of the NSE, and use a Covered Call writing strategy to generate long-term capital appreciation. This will be done by capitalizing on the upside in Equity as well as through Covered Call Option writing in the Derivatives segment.To adopt this two-pronged strategy to invest in listed stocks for long-term growth and maintain a derivatives segment to create an alpha, thereby generating returns greater than the market.
There is no assurance or guarantee that the Investment Objective of the Fund will be realized.
Expected returns: In the long run, the fund can deliver gross returns of 12-20%. In a market that is range-bound and stagnant, this strategy yields the best results.
Volvin growth fund is India’s 1st fund focused on wealth creation through covered call writing
Key features or usps for the fund
- Conservative Equity Product
- 30% lower risk than Equity Mutual Funds
- Can deliver a gross 12-18% even in a stagnant market
- Top performing fund in the country with a Sharpe Ratio of 2+
- It is an All-weather fund – we create wealth in most scenarios.
- Covered call option writing is the only strategy that creates alpha even in stagnant or uncertain markets.
- Monthly income in the Derivatives segment by call option writing, ranges from 0.90% to 2.50% a month (as per past data Oct 22 to Sep 24).
- A diversified portfolio of 40-60 stocks at most times ensures higher stability and 40% lower risk than the market and most Equity Mutual funds. Beta of the fund was 0.55 for the last year (2023-24)
- An average long position of around 70% ensures 30% lower risk.
- The fund tracks the Greed & Fear indices to track the emotions of the market players
- The Fund manager is more focused on Risk measures than market returns
- Uses derivatives for hedging, especially during high volatility in an uncertain market
Step 1 – stock selection:
The domain for stock selection is only the 184 stocks available in the NSE Futures & Options segment. Fundamental analysis is used to identify stocks that can be part of the portfolio. Primary parameters used are PE ratios, Growth of the company & sector, Price to Book, dividend & growth consistency, management, and the future outlook for the sector.Step 2 – portfolio creation:
Technical charting is used to identify the right level to invest in the stock. Market Structure and technical indicators such as Moving Averages, RSI & MACD are used to identify the entry point. When the identified stock approaches the entry, the entry is made in a staggered manner of the total planned investment.Step 3 – writing call options:
Monthly Call options on the stocks are sold/written to generate returns in the derivatives segment. These options are primarily sold on the underlying portfolio in the Equity segment. Whether a call option is sold at the money, deep in the money, or out of money is dependent on the technical view of the particular scrip. Staggered selling of call options is also used when the technical view is not clear.Step 4 – profit booking:
When the portfolio stock prices reach their target, the call is covered and the profit is booked in the Derivatives segment and then can be re-deployed again. If the stock has not performed well, the call is simply bought back and the stock remains in the portfolio. If the stock price crosses a certain level, the stock is simply exited as the returns on investment have reached the target.Step 5 – monitoring the portfolio:
The portfolio is monitored continuously. The volatility of the stock is monitored regularly. If the volatility is very high, the existing call options are rolled over by buying back the existing options and writing new options. This ensures that profit can be made even when volatility is high.Finally, the portfolio is rebalanced at the beginning of each quarter to keep the stock holding percentage at a constant level.
Investment Philosophy
The fund philosophy stems from the need of individual & corporate investors who wish to create wealth on their investments at a lower risk. Equity is the best product for wealth creation in the long run. This fund will invest in Equity and use the globally popular strategy of Covered Call writing to generate returns from Equity with lower risk.
“Winning through volatility” beautifully sums up the entire Volvin Philosophy.
By this we mean that the markets are volatile in the short run, and understanding volatility helps us create wealth in the long run by taking advantage of short-term volatility. Knowledge that stock markets are volatile, but equity as an asset creates the maximum wealth in the long run, helps us achieve exactly that.
Both Equity as well as Derivatives are equally important to the whole strategy. A diversified Equity portfolio created based on fundamental research provides stability to the portfolio, and the Derivatives segment ensures Monthly Returns by use of Covered Call Option selling on the underlying.
Investment Objective
The Volvin Balanced Fund – Rabbit Returns, in the long run, intends to create wealth for investors. The objective is to invest in Equity, use derivatives for the covered call option writing strategy, arbitrage opportunities, and derivative strategies to provide capital appreciation in the long run along with distribution of capital.
The fund also intends to distribute returns on a monthly/quarterly basis through capital return/distribution.
The fund will adopt a 3-pronged strategy:
Generate Returns & alpha in the Derivative Segment on a monthly basis through a Covered Call option writing strategy on the underlying portfolio at a much lower risk than even Equity Mutual Funds
Income / Capital distribution on a Monthly or Quarterly Basis
There is no assurance or guarantee that the investment objective of the Fund will be realized.
Key Features
30%-40% lower risk in terms of Beta compared to Equity Mutual Funds
Will try to deliver capital appreciation as well as Monthly/Quarterly Payouts
The investment horizon should be 3 years or more
The product should do well even in a stagnant market or where the broader indices remain in -10% to +10% range
The objective of the fund is to generate total Gross returns of 12-18% p.a.
Balanced – Best of both worlds – Equity & Debt
Expected Returns
Aims at Monthly/Quarterly Dividend or Capital payout of gross 5-8% p.a.
Investment Strategy
In the Equity segment, the Fund invests similarly to a diversified mutual fund in stocks of 40-60 listed entities featured in the NSE Futures & Options Segment. Fundamental research is used to create this portfolio. This is generally passive investing as the portfolio turnover targeted is below 30% for a year.
Fundamental investing is the paramount factor for stock selection. Stocks are carefully picked based on PE, Price-to-book, dividend yield, and growth prospects for the next 3-5 years. We avoid high PE stocks in sectors such as FMCG, e-commerce, and fintech.
In the derivatives segment, the fund focuses on writing/selling covered call options on stocks in the underlying portfolio. This helps generate monthly returns on the portfolio regardless of market movement.
USP – India’s First
India’s First Fund aiming to generate capital appreciation of Equity and returns from Debt simultaneously
Will use Covered Call strategy to target gross returns in a range of 15-30% over the long term
Ambitiously targets around 12% long-term capital appreciation and 7% FD-like returns as regular income
High Sharpe ratio
Low Standard Deviation
Low Beta
Liquidity
Exit load: 2% up to 2 months, 1% up to 6 months
No lock-in period
Benchmark: Nifty 50 Hybrid Composite Debt 50:50 Index
Key Partners
Fund Accountant: HDFC Bank
RTA: CAMS
Trustee: Vistra ITCL (India) Limited
Tax Consultant: BD Bansal Co.
VOLVIN PRESERVER FUND – CONSISTENT TORTOISE
Philosophy
The fund philosophy stems from the need of individual & corporate investors who wish to invest in low-risk products, at the cost of having the lowest returns. This category is the lowest rung in the ladder in terms of returns, but is also the lowest in terms of risk, thereby falling in the least-risk category. The primary objective of the fund is safety of capital and preservation.
The lowest risk or most safe investment options available are Fixed Deposits, Govt. Bonds or high-quality Corporate bonds or Arbitrage Funds. Those investing in Fixed Deposits for the long term lose out on heavy exit loads charged in case of premature withdrawal. Even most arbitrage funds have an exit load for redemption before 30 days. To avoid exit loads or premature withdrawal charges, the only option left would be to park money in short-term Deposits, but the returns on these are very low.
Volvin Preserver Fund – Consistent Tortoise aims to give more flexibility to the investor to withdraw at weekly intervals without having to sacrifice on these already minimal returns in the total spectrum of investing.
Investment Objective
Most of the products like Fixed Deposits, Government Bonds, and AAA Corporate Bonds hardly preserve wealth as the income tax on these products is around 30%, thereby actually destroying wealth on a post-tax basis. At Volvin Limited, we understand the difference in wealth creation and wealth preservation. In a real sense, wealth preservation would mean generating returns above 7% on a post-tax and post-expenses basis.
The investment objective for the Volvin Preserver Fund – Consistent Tortoise is to preserve the wealth of the investor, thereby trying to create gross returns in excess of 10% p.a. to cover for the fund expenses and taxation.
This will require the fund to generate an alpha of 3-5% a year over and above the inflation or FD rate of 7% with minimal risk. The aim is capital protection as well as alpha generation to cover for fund expenses and taxation.
Wealth preservation for us means returns greater than inflation rate on a post-tax basis. The objective of the fund is to generate these returns with lowest possible risk.
The Fund will invest in listed Indian securities, other permitted securities, and investments that a Category III AIF is permitted to invest. It will adopt a two-pronged strategy to invest in listed stocks for arbitrage returns and maintain a derivatives segment to create alpha, thereby generating returns greater than the benchmark.
Expected Returns
- The fund will endeavour to create gross return in the range of 7-11% p.a.
- On a post-tax and expenses basis, the fund would target returns of 6-8% p.a.
There is no assurance or guarantee that the Investment Objective of the Fund will be realized.
USP – India’s First: India’s 1st Fund in the wealth preserver or arbitrage category with weekly entry exit option
Key Features
- Low-risk Product similar to arbitrage looking to exploit low-risk strategies in Options & Derivatives
- Normally low-risk and low-income products like FDs and arbitrage funds attract either low liquidity, a lock-in period, or an exit load.
- Volvin Preserver Fund – Consistent Tortoise will be India’s First Cat3 investor-friendly fund offering greater flexibility in the form of:
- (a) Weekly Entry & Exit
- (b) No Exit Load
- The fund will try to generate higher returns on post tax basis.
- This fund will compete with Fixed Deposits, Liquid Funds, and Arbitrage funds due to no exit load whether redemption is sought in 1 week, 4 weeks, 3 months, 6 months, or even a year. Also, as the fund endeavors to create an alpha of 3-5% a year, the fund will try to generate returns of more than 6-7% p.a. on a post-tax basis.
- Greater flexibility to the investor in terms of weekly entry and exit options.
Investment Strategy
Volvin Preserver Fund – Consistent Tortoise aims to generate net returns closer to inflation, the 5-year G Sec or Fixed Deposit returns. The fund targets 10-11% gross returns per annum. As the primary objective of the fund is to create returns with the lowest possible risk, the primary strategy will be:
- To invest in the Equity in the Cash segment and short in the Futures segment thereby taking advantage of Arbitrage between both prices. This is possible for around 180 listed stocks featuring in the F&O category of NSE.
- To invest in high-quality Corporate Bonds or Debt Instruments rated at least AA+ to AAA and generate returns in the range of 9-10% per annum.
- To invest in Arbitrage opportunities in derivatives in such a manner to hedge the investment risk and generate alpha.
The combination of above strategies will help create net returns in excess of 10-12% on a gross basis.