In conversation with Mr. Sirshendu Basu, Head – Products, Bandhan AMC

September 10, 2025 admin Leave a reply

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We spoke to Mr. Sirshendu Basu, Product Head at Bandhan Mutual Fund, on the occasion of the launch of the Bandhan BSE India Sector Leaders Index Fund NFO. The scheme aims to provide investors an opportunity to participate in India’s leading companies across key sectors, benchmarked to the BSE India Sector Leaders Index, which has delivered strong long-term returns of over 22% CAGR in 3 years and 25% CAGR in 5 years. In this conversation, Mr. Basu shares his insights on the fund’s positioning, sector dynamics, and how Bandhan MF plans to deliver long-term value to investors.

1. Positioning of the Fund
   The BSE India Sector Leaders Index has delivered strong long-term returns — 22.5% CAGR over 3 years and 25.3% CAGR over 5 years. What makes Bandhan Mutual Fund believe that now is the right time to launch an index fund tracking this benchmark, and how do you see it fitting into the current market cycle?

Bandhan BSE India Sector Leader Index Fund is a first-of-its-kind offering, built on a clear and intuitive approach. It follows a structured methodology rooted in a familiar investment instinct—investing in the top-performing companies across each sector.

The fund would be tracking the BSE India Sector Leaders Index, that selects top 3 companies by total market cap from every sector in the BSE 500. The weight to each stock is capped at 5% and floored at 1%, giving meaningful representation to each stock. Its diversified and disciplined allocation makes it suitable as a core portfolio strategy.

Regarding timing, a core strategy like this is not about market timing or trying to predict short-term moves. Instead, it’s designed for market participation and serve as a foundational allocation that investors can rely on over time.

2. Index vs. Active Strategy
Since this NFO is based on a defined index methodology, what are the key strengths and limitations of this benchmark in capturing India’s sectoral leaders? How does Bandhan MF plan to add value to ensure tracking efficiency and possibly deliver better investor outcomes compared to directly buying the index?

Key Strengths:

Invests in leading companies across all sectors, focusing on quality names with stronger profitability and balance sheets.

Ensures meaningful representation to each stock (capped and floored weights), unlike broader indices like the BSE 500 where smaller stocks often get minimal weight.

Offers a differentiated sector allocation, structurally underweight financials, unlike most broad market indices.

Key Weakness:

While the strategy provides broad sector exposure through a well-defined, strategic allocation, it’s important to note that it does not adjust sector weights dynamically in response to market shifts. This means during changing market conditions, the allocation remains stable, which may limit short-term flexibility but supports a disciplined, long-term investment approach.

Replicating the index directly poses several practical challenges for individual investors. First, since the index itself isn’t directly investable, they would need to buy each of the underlying stocks individually—making the ticket size significantly high, especially with 30+ stocks. Accurately matching the index weights would require a portfolio size upwards of ₹5–6 lakhs, which isn’t feasible for most retail investors.

Second, managing allocation and rebalancing becomes complex, and every buy/sell transaction may result in capital gains tax implications. In contrast, a mutual fund structure simplifies all of this—offering affordable access, professional management, and tax efficiency within a single investment.

3. Sector Rotation & Market Leadership
The benchmark index reflects India’s leading companies across sectors. Given recent volatility in sectors like PSU Banks, Pharma, and Energy, how do you expect the index composition to capture sectoral leadership shifts, and how should investors interpret these rotations?

The strategy isn’t designed to actively respond to short-term market movements like a business cycle or tactical allocation fund. Instead, it takes a disciplined, rules-based approach, selecting the top 3 companies by market cap in each sector. While it doesn’t react immediately to volatility, it captures shifts in sector leadership over time through regular index rebalancing, allowing investors to stay invested in strong, established companies as market dynamics evolve.

4. Risk Management
While the long-term returns are attractive, short-term volatility can be high (e.g., only 4.3% in the past 1 year). What measures will Bandhan MF take to manage tracking error and protect investor confidence during such phases of underperformance?

Since this is a passively managed fund, it will replicate the BSE India Sector Leaders Index without any active stock selection. Like any equity scheme, it may exhibit higher short-term volatility, but over the long term, we expect its volatility to be in line with, or slightly higher than, broad market indices like the Nifty 50 or BSE Sensex.

Tracking Error indicates how closely a fund replicates the underlying index. As the Indian market has matured over the years, there is ample liquidity in the market and we don’t see any challenges in replication.

5. Investor Target Segment
Who should ideally invest in the Bandhan BSE India Sector Leaders Index Fund? Is it positioned for long-term wealth creators, tactical allocators looking for sectoral strength, or first-time index investors?

This fund is positioned as a core equity allocation built on a simple, intuitive idea—investing in sector leaders across the market, just as most investors naturally do. While the fund is suitable for all investors, we feel it may especially appeal to DIY investors and Mutual Fund Distributors.

DIY investors often gravitate toward leaders in familiar sectors, unintentionally creating concentration risk and facing uncertainty around stock allocation—this fund addresses both challenges with a simple, rules-based approach. For MFDs, it’s an intuitive, differentiated, large-cap tilted product that’s easy to position and explain to clients—a first-of-its-kind offering in the market.

6. Beating the Index / Differentiation
Given that index funds are designed to mirror the benchmark, how will Bandhan MF strive to minimize tracking error, reduce costs, and ensure tax efficiency — effectively helping investors “beat the index” in net returns, even if marginally?

Passive funds, like index funds, don’t aim to beat the benchmark—they aim to replicate its performance as closely as possible, after accounting for expenses. The goal is to track the index efficiently, with minimal deviation, also known as tracking error. So, a passive fund that consistently delivers returns close to its benchmark is considered to be doing its job well.

What makes passive investing effective is the fundamental principle that markets are a zero-sum game—for every investor who outperforms, someone else must underperform. Once you factor in fees, taxes, and transaction costs, consistently outperforming the market becomes very challenging. Globally, evidence shows that a majority of actively managed funds struggle to beat their benchmarks over time, which is why passive funds have emerged as a cost-effective and reliable way to participate in market returns.

Interview by Ms. Jainee Shah
Director
Chanakya Mediahouse Pvt. Ltd.
SEBI Registered Research Analyst

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