Many mutual fund houses are now launching multi-asset allocation funds as a part of their new fund offers (NFOs). Take, for example, DSP Mutual Fund which launched its multi-asset allocation fund recently just a few days after Kotak Mahindra Asset Management Company came out with a similar fund though the asset allocation of both the fund houses differ to some extent.
In all this furore, what is striking is the increasing interest of investors in this type of fund that allows money allocation among myriad asset classes, viz., equity, debt, gold, REITs, etc. As an illustration, the asset allocation of the DSP Multi Asset Allocation Fund in normal circumstances would look like this.
| Instruments | Indicative allocations (percent of total assets) | Risk Profile | |
Minimum | Maximum | ||
Equity & Equity related instruments including derivatives | 35% | 80% | Very High Risk |
Debt and money market instruments | 10% | 50% | Low Risk to Moderate Risk |
Gold ETFs & other Gold related instruments (including ETCDs) as permitted by SEBI from time to time | 10% | 50% | Moderate Risk to High Risk |
Other Commodity ETFs, Exchange Traded Commodity Derivatives (ETCDs) & any other mode of investment in commodities as permitted by SEBI from time to time | 0% | 20% | Moderate Risk to Very High Risk |
Units of REITs & InvITs | 0% | 10% | Very High Risk |
The concept behind allocating funds to this particular scheme is to foster long-term capital growth by diversifying investments across various asset classes. These include equities and equity-related securities, debt instruments, money market assets, commodity ETFs, exchange-traded commodity derivatives, and international securities.
The performance of this kind of scheme is benchmarked against 40% NIFTY500 TRI + 20% NIFTY Composite Debt Index + 15% Domestic Price of Physical Gold (based on London Bullion Market Association (LBMA) gold daily spot fixing price) + 5% iCOMDEX Composite Index + 20% MSCI World Index.
There are already many similarly performing funds in this category, which means that investors can just look at these funds’ previous five to 10 years’ returns to decide which fund has performed well over a period. More than just returns, it is the stability of a fund and its returns that matter most, which is why investors must gauge a fund’s performance by digging well into its past rather than looking at how it performed in the past year.
The following table lists the performance of some funds along with their past five-year and 10-year returns, thus, hinting at their ability to optimize from the earnings and growth of various assets that constitute these funds.
Name of the fund | Five-year returns (in %) | 10-year returns (in %) |
ICICI Prudential Multi-Asset Fund | 16.52 | 17.73 |
Quant Multi Asset Fund | 23.72 | 14.66 |
HDFC Multi-Asset Fund | 12.08 | 12.51 |
SBI Multi Asset Allocation Fund | 11.82 | 12.52 |
Axis Multi Asset Allocation Fund | 11.32 | 11.80 |
| Source: MoneyControl | ||
The performance of none of these funds has been exemplary, though many of them managed to consistently beat inflation over a decade. While some investors may argue against these funds explaining how they can themselves divide their earnings among different asset classes, what most of them would miss out on is the fund manager’s relevant experience, which helps to decide when to shift earnings between the assets and, most importantly, which asset class to lend priority for better returns depending on market conditions and macro factors whose understanding is beyond the scope of layman and not so financially literate people.
