Motilal Oswal Mutual Fund’s new fund offer (NFO) — Motilal Oswal Multi Asset Fund — is open for subscription until July 27. Being an open-ended fund, the scheme will also reopen for purchase shortly after the NFO closes.
Investment strategy
The fund aims to generate long-term capital with reasonable returns by investing in multiple asset classes such as equity , international equity index funds, debt and money market instruments, and gold exchange-traded funds (ETFs).
The asset management company (AMC) believes that allocating funds solely to a single asset class is not prudent as the asset is prone to behave inconsistently, go through its own cycles, and may not generate inflation- and risk-adjusted returns.
The scheme will use Motilal Oswal Value Index (MOVI) as an indicator for asset allocation between equities and debt. MOVI is Motilal Oswal AMC’s proprietary index which is calculated taking into account the price-to-earnings (P/E), price-to-book (P/B) and dividend yield of the Nifty 50 index.
Higher the index value, higher the valuation of the market — the fund’s allocation to equity will be higher when the valuations are low, and vice versa.
The fund house defines the asset allocation between debt and equity using the MOVI band, which ranges from ‘less than 70’ to ‘greater than 130’. For instance, at MOVI band of less than 70, asset allocation between domestic equity and debt would be 25-27.5 per cent and 55-52.5 per cent, respectively. The minimum investment in international equity indices/ETFs and gold ETFs is fixed at 10 per cent each.
Under equity allocation, the scheme will take a large-cap orientation. Under debt allocation, the fund house will invest in instruments with medium-term maturity and high credit quality.
The AMC will review the asset allocation twice a month based on the MOVI band.
The fund will be benchmarked against — 30 per cent Nifty 50 TRI + 50 per cent Crisil Short Term Gilt Index + 10 per cent domestic price of gold + 10% S&P 500 Index (TRI).
Diversification across multiple asset classes is intended to reduce volatility in returns as different asset classes outperform each other at different times.
So, multi-asset funds may suit long-term investors.
For taxation purposes, the schemes in the category are considered non-equity funds.
Peers
Some of the other multi-asset schemes in the market today are from fund houses such as SBI, ICICI Prudential, Axis, UTI, Tata and HDFC.
Note that some of these funds were re-categorised into multi-asset funds post the issue of new norms by SEBI in 2018. So, the long-term track record of these funds may not be relevant now.
While the Tata scheme was launched recently, Axis Triple Advantage Fund (TAF) has been a multi-asset fund since its inception in 2010. For one-, three- and five-year periods, it has delivered returns of about -0.06 per cent, 5.16 per cent and 5.67 per cent, against benchmark returns of 0.55 per cent, 7.55 per cent and 7.79 per cent, respectively.
As of June 2020, Axis TAF has 66.31 per cent of its portfolio in equity, 10.72 per cent in gold, and 22.97 per cent in debt and cash.
Most other funds from ICICI Prudential, SBI and UTI, too, have higher allocation to equities.
Motilal Oswal AMC, on the other hand, might take lower exposure to equity considering that its benchmark is skewed more towards other asset classes.
According to the fund house, Motilal Oswal Multi Asset is likely to initially have an asset allocation of 17.5-20.0 per cent in equity, 62.5-60.0 per cent in debt, 10 per cent in international index funds and 10 per cent in gold ETFs.