This is the second multi-asset allocation fund launch in the last two weeks. On 18 August, Shriram Asset Management Company, part of the Shriram Group, launched the Shriram Multi Asset Allocation Fund with exposure to multiple assets such as equity, debt, and gold/silver ETFs.
Kotak’s Open ended scheme will invest in equity, Debt & Money Market Instruments, Commodity ETFs and Exchange Traded Commodity Derivatives (ETCDs).
Investors can invest under the scheme with a minimum investment of Rs 5000 per plan/option and in multiples of Re 1. There is no upper limit for investment. . They can also invest through a Systematic Investment Plan (SIP) of Rs 500 (Subject to a minimum of 10 SIP instalments of Rs 500 each) during the New Fund Offer (NFO) period.
Asset allocation of the scheme will be as follows:
The fund will invest at least 65 per cent of the scheme’s corpus in equities at all times
Asset allocation is the process of dividing your investment portfolio into different asset classes, such as equities, bonds, and cash. This helps to reduce risk and improve your chances of achieving your financial goals.
Given that Kotak Mahindra Mutual Fund has more than 19 years of experience in managing funds, and that multi-asset allocation funds are a good fit for conservative investors, they should ideally stick with large fund houses that have a good track record.
“So one fund gives you multi-asset exposure, which means you don’t have to buy those assets individually if the fund alone satisfies your investment needs. The other benefit is that rebalancing may be done within the fund, which means you don’t have the burden of buying, selling, and paying taxes on gains on isolated assets. The fund does it for you,” said Adhil Shetty, CEO of Bankbazaar.
“An investor might get a diversified fund portfolio by investing in multi-asset allocation funds. Therefore, portfolio diversification greatly reduces associated risks while generating consistent returns. Additionally, it assists in distributing the risk associated with investing in a single asset class. Even when some asset classes are performing worse than usual, investors still receive a consistent stream of income. The equity exposure in this scheme also provides capital gains over the long term,” said Gaurav Rastogi, Founder & CEO, Kuvera.in
The drawback
“For instance, you may have two goals – your retirement, which is 25 years away and buying a car, which is 2 years away. For the former, you would ideally want to invest into a high-risk, high-return fund like a small-cap or a mid-cap fund in order to benefit the most from rupee cost averaging and compounding. For the latter, you would be better off sticking with an arbitrage fund that provides modest returns but assures the safety of your principal. For yet another goal, perhaps a debt-oriented hybrid fund would be most suitable. But by lumping all these objectives together and investing into a packaged solution like a multi asset fund, the overall “purpose” of investing gets muddled,” said Aniruddha Bose, Chief Business Officer, FinEdge.
Should you invest?
Point to note: Each multi-asset allocation is different. For instance, HDFC Multi-Asset Fund and Axis Multi Asset Allocation Fund invest largely in large-cap stocks, while Aditya Birla SunLife Multi Asset Allocation Fund and UTI Multi Asset Fund invest a tad bit more in mid-cap stocks.
“Investing in multi-asset allocation funds can have varying outcomes depending on how the fund manager chooses to invest in equity and debt asset classes. These funds can serve multiple purposes in your portfolio and are particularly useful for investors who wish to minimize their portfolio risk,” said Shetty.
Kotak Multi Asset Allocation Fund would be investing in equity and equity related Securities, Debt & Money Market Instruments, Commodity ETFs and Exchange Traded Commodity Derivatives and such other asset classes. Different asset class carry different types of risk. Accordingly, this scheme’s risk may increase or decrease depending upon the investment pattern.
The scheme would follow a dynamic asset allocation pattern
For example, if the manager believes that the equity markets are overvalued, they may reduce the fund’s exposure to equity and increase its exposure to debt. This would help to reduce the fund’s risk if the equity markets decline.
Dynamic asset allocation is a more complex investment strategy than static asset allocation, where the fund’s asset allocation is fixed. However, it can also be more effective in managing risk and generating returns.
“We believe that these schemes are a poor cousin to genuine macro top-down strategy products which offer a lot more dynamism and flexibility to protect investors from over-valued asset classes and late-cycle investment risks,” added Goel.
Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd