Free Cash Flow and Asset Allocation Strategies

Social Venture Funds

• Invests in companies with positive social or environmental impact, such as sustainability and clean energy
• Generated favorable returns in the past

Infrastructure Funds

• Invests in infrastructure projects, such as railways, bridges, and airports

Alternative Investment Funds (AIF)

Category II AIF

• Does not use leverage or debts, except for day-to-day operational expenses
• Includes Private Equity Funds, Debt Funds, and Fund of Funds

Private Equity Funds

• Makes equity investments in unlisted companies to help raise capital

Debt Funds

• Invests in debt securities of unlisted companies via bonds, debentures, and other fixed-income instruments

Fund of Funds

• Invests in multiple AIFs, rather than directly in stocks or bonds

Category III AIF

• Uses complex trading strategies, may use leverage or debt for investment in listed or unlisted derivatives
• Typically has a ratio less than 1, except for capital-intensive businesses

Criteria for Selection of Companies for Long-term Investment

Revenue Growth

• Should be greater than 15% YoY to ensure business growth, profitability, and survival

Gross Block

• Should be greater than ₹2000 crores to generate adequate revenue growth, except for asset-light models or quick commerce

Free Cash Flow (FCF)

• Represents cash generated by a business, considered a better metric than EBITDA
• Used for valuation and determining debt obligations
• Calculated as: Revenue – (operating expenses + taxes) – capital expenditure

Asset Allocation Strategies

• Involves deciding where and how to invest based on factors like projected return, risk tolerance, corpus size, etc.

Passive Strategy

• Involves buying and holding stocks to reduce transaction costs, considered less risky

Active Strategy

• Involves frequent buying and selling, aiming to outperform the market

Value Investing Strategy

• Involves investing in undervalued companies based on their intrinsic value
• Aims to benefit from market corrections and increase in stock price

Income Investing Strategy

• Focuses on generating cash income from stocks, rather than increasing portfolio value
• Includes dividend and fixed interest income from bonds

Dividend Growth Investing Strategy

• Focuses on companies that consistently pay dividends and aim to increase dividend payout every year
• Allows investors to benefit from compounding over the long term

Contrarian Investing Strategy

• Involves buying stocks of companies during downtime, focusing on companies with value and branding
• Aims to buy low and sell high, but requires careful selection of companies

Learn about Free Cash Flow (FCF) and how it is calculated, as well as its importance in company valuation. Explore asset allocation strategies that help investors make decisions on where and how to invest based on factors like projected returns and risk tolerance.