The Hindu Business Line : Investors not keen on fund of funds

THOUGH asset management companies were enthusiastically launching fund of funds or asset allocation products, there seem to be very few takers for these now.

Conceptually, fund of funds were expected to help investors cut through the clutter of multiple mutual fund products and help them invest in many funds simultaneously.

However, distributors are not very keen on pushing these products as it is viewed as a category that replaces their role in allocating investors' money across funds.

While Birla Sun Life's Asset Allocation Fund and Franklin Templeton's Life Stage fund of funds invest in funds managed by their respective fund houses only, Kotak Equity fund of funds has a mandate that allows it to invest in funds across the industry and not just those managed by Kotak Mahindra Asset Management Company.

Performances of most of these asset allocation funds are also in the lower quartile of funds investing in diversified equity funds. Birla Sun Life's Asset Allocation Fund - aggressive plan has returned 13.62 per cent as against a sector average of 16.64 per cent for the last three months. Similarly, Franklin Templeton's Lifestage 20's plan, which invests 80 per cent in equity funds and 20 per cent in debt-oriented funds, has returned 11.69 per cent during the same period. Kotak Equity fund of funds has posted 4.28 per cent for the last one month, marginally above the sector average of 4.12 per cent.

AMCs concede that the product has not lived up to its expectation. It is being aggressively sold to retail investors. "We are trying to tell our investors that investing in our fund of funds would result in their money being managed by 5-6 fund managers," said Mr Krishna Kumar, Chief Marketing Officer, Kotak Mahindra AMC.

Distributors, however, are not very enthused about the product. "AMCs say that the product is for investors who do not want to spend time and study the offer documents of multiple funds and then make a decision to invest how much in what fund. But that is the role that financial advisors of distribution companies play. We allocate the investors money between various funds. There is no need for a fund manager to do that," said the retail head of a distribution company.

Another factor deterring investments into this class of funds is the incidence of transaction tax. Though, the impact of this is not very high, investors are loath to put their money in a fund which is liable to pay transaction tax at three levels, say distributors.