The multi-asset allocation category in mutual funds has seen a spate of launches in the last one year as fund-houses such as ABSL, Baroda BNP, WhiteOak, Edelweiss and Shriram unveiled their products. As this asset class performance is cyclical and unpredictable, investors are increasingly realising that having a balanced and structured portfolio is key for returns as well as peace of mind.
The latest to join the bandwagon is none other than Kotak MF with its Kotak Multi Asset Allocation Fund, an open-ended scheme investing in Equity, Debt & Money Market Instruments, Commodity ETFs and Exchange Traded Commodity Derivatives. It is different from Kotak Multi Asset Allocator Fund Of Fund- Dynamic, a similar passive offering by the fund house.
Here is a review of the new offering. The NFO period ends on September 14.
How does the fund help
A hybrid fund serves as an excellent entry point for novice investors. In addition to aggressive hybrid schemes, multi-asset funds can also make valuable contributions. These funds are equally beneficial for seasoned investors seeking to minimise portfolio volatility by diversifying across various asset classes, making them well-suited for maximising returns.
Like any other multi-asset allocation funds, Kotak Multi Asset Allocation Fund aims to take the hassle out of asset allocation by empowering investors to outsource it to the professional fund managers. By investing in Equity and Equity related securities, Debt & Money Market Instruments, Commodity ETFs and Exchange Traded Commodity Derivatives (ETCDs), it plans to offer investors for a complete asset allocation solution through a single investment vehicle.
Multi-asset allocation funds aim to build a portfolio that does well in different environments. As such it is marketed as an all-weather solution which is also diversified.
Kotak Multi Asset Allocation Fund offers equity taxation. This makes it different from existing scheme: Kotak Multi Asset Allocator Fund Of Fund- Dynamic where investments are taxed like debt funds.
Kotak Multi Asset Allocation Fund aims to invest in 4 asset classes.
* Equity (65-80% allocation) - Dynamic asset allocation with 24-80% net equity exposure. Flexible approach in market cap allocation. Combination of factors for asset allocation. Portfolio filtered to 50-60 stocks.
* Debt (10-25% allocation) - Dynamic duration management. Medium term maturity. Mix of sovereign and high-quality corporate bonds.
* Commodity (10-25% allocation) - ETCDs or ETFs with commodities as underlying. Long-term investments based on macro-economic factors. Short-term investments will be to capture arbitrage or other event-based opportunities.
* Overseas (0-15% allocation) - Tactical allocation. Diversification in terms of markets and currency.
Notably, the new fund appears to be counter-cyclical in approach. It aims to increase allocation in equity when market valuations become cheaper and vice versa.
Its benchmark will be NIFTY 500 TRI (65%) + NIFTY Short Duration Debt Index (25%) + Domestic Price of Gold (5%) + Domestic Price of Silver (5%)
Fund Managers will be Devender Singhal (Equity), Abhishek Bisen (Debt), Hiten Shah (Arbitrage), Jeetu Valechha Sonar (Commodity) and Arjun Khanna (Overseas Investments).
Minimum investment (NFO) will be ₹5,000 for lump sum and ₹500 for SIP purchase (minimum 10 installments).
If units redeemed or switched out are in excess of the 30 per cent limit within 1 year from the date of allotment, then exit load applicable will be 1 per cent.
The fund offers Direct Plan and Regular Plan Growth and Income Distribution cum capital withdrawal (IDCW) (Payout and Reinvestment) options.
Returns in similar funds
Kotak MF has given a glimpse of multi-asset allocation returns through Kotak Multi Asset Allocator Fund Of Fund- Dynamic (see table below).
But do note that fundamental attributes of this fund have undergone changes in recent years. Kotak Multi Asset Allocator Fund Of Fund- Dynamic invests in Kotak Mahindra Mutual Fund schemes & ETFs / Index schemes (Domestic & Offshore Funds including Gold ETFs scheme). It is benchmarked to 90% Nifty 50 Hybrid Composite Debt 50:50 Index + 5% Price of Physical Gold + 5% MSCI World Index.
Multi-asset allocation funds invest across a diverse range of asset classes. Investors seeking reduced volatility and more predictable returns might find multi-asset options appealing. However, it’s crucial for the fund to strike the right asset allocation mix and maintain an optimal equity exposure to achieve the desired return enhancement, which will ultimately impact your actual returns.
Investors must be crystal clear in their objective when considering a multi-asset fund. If they already have exposure to dynamic asset allocation, balanced advantage funds, or hybrid funds, a multi-asset fund primarily introduces a touch of commodities or overseas equities to their existing mix.
ICICI Prudential Multi-Asset and Quant Multi Asset funds may be good choices given their medium to long-term track records. Investors may wait for the new fund to develop a consistent scorecard before taking exposure.