In an interview to CNBC-TV18, personal finance expert, Feroze Azeez of Anand Rathi Private Wealth Management discussed various features of multi-asset funds.
Below is the verbatim transcript of Azeez's interview with CNBC-TV18.
Q: Multi-asset funds might have been working wonders given the way gold etc. had been rallying, but now with commodities as a basket coming under pressure and equities not really performing, do they still hold relevance? Give us an idea? You need to explain to us how multi-asset funds function in terms of percentage asset allocation and their relevance going forward?
A: As of now these multi-asset funds are actually funds, which distribute asset across different asset classes. When things are very difficult for an investor to choose these kinds of funds in uncertain times become more relevant, for the fact that they decide the fund manager and leave the allocation to the expert.
There are two prominent kinds of asset class oriented funds, the multi-asset funds and one of them which mix gold, equity and debt. The gold, equity and debt funds, if they are dynamically managed, the gold portion and the equity portion predominantly have a significant hedge over each other, so they bring down the risks considerably, still retaining the expected return high and these funds from systematic investment plan (SIP) perspective for a retail investor make a perfect sense for the fact that the rupee cost averaging gets amplified.
Therefore, these work as three different assets put into one fund. So, it leaves fund managers discretion on the allocation, which seems very profitable in these uncertain times, so that's one point.
Also Read: Why investing in gold ETFs is a good option
The SIP mode amplifies the rupee cost averaging significantly because there is significant portion in the debt, due to high interest rates the accruals of those high interest rates actually takes care of the capital preservation over long-term periods, so one of those is the gold-linked monthly income plans (MIPs) or multi-assets.
There is a one more interesting category, which has emerged over the last year or year-and-a-half in the asset management space, which is called the Dual Advantage Funds. These Dual Advantage Funds mix debt and Call options, which are interesting for the fact that a retail investor gets maximum exposures to equity, still preserving his capital over three year periods. So, that's another thing, which has gained flavour and about 50-55 new fund offers (NFOs), which have come over the last year or year-and-a-half.
Q: 50-55 NFOs last year, but any fund, which has a longer track record than that and has any of them actually outperformed even a fix deposit?
A: These Dual Advantage Funds actually are close-ended in nature. The fund manager buys debt and buys a Call option. So, there is not too much of a human intervention here. It basically becomes an index fund almost with a capital protection, which is a significant improvisation on any other index fund for that matter, so there is no human intervention.
To answer the question whether any of these have matured? No, not none in fact, but there is no human intervention, one is dependent on Nifty and if Nifty performs very well over the next three years looking at the current valuations, which seems likely if one is able to sail through these uncertain times then the client still has his protection on the capital, which should keep one less worried.
Caller Q: I have been investing in gold ETFs since the past five years. Along with lot of small investments, I hold a big investment in UTI Gold Exchange Traded Fund. Since the past couple of days I have seen the returns fall down from 20 percent to almost 3 percent. Can you please guide me the strategy to handle my investments?
A: Exchange Traded Funds generally tend to replicate gold, but in times of exaggeration in terms of movements, they tend to digress from the underlying. From an investor perspective it is never advisable to have substantial portions in one asset. That is a thumb rule kind of a recommendation.
Switching to the question as to what should somebody do if he is has substantial portion of assets in gold? Is gold is going to be under pressure for the fact that it has rallied and broken resistances on the downside. There are three-four reasons why there will be pressure on gold going forward as well. Like Cyprus in the euro zone when there is stress instead of austerity they would be focusing on reducing their gold reserves to provide for stimulus. There has been the largest gold fund or the ETF of the world, has been at the lowest assets today. Therefore, there are enough signs that gold will remain under pressure having broken the low resistances and the macroeconomic indicators suggesting that gold will be under pressure.
So, answering to the caller question, it is very critical to divest substantial portion of money out of the ETF and leave a portion, which can be not more than 20 percent of your portfolio and look at debt 50 percent of the money and 30 percent into equity would be my first reaction. Therefore, on the debt side you have high interest rate, which you will enjoy for a while. So, it is wise to capitalise on the debt rate and the returns provide for growth assets accumulation. Therefore, you can look at 30 percent of your equity going into a weekly systematic transfer plans (STP) kind of a model into SBI Emerging Business Fund and an ICICI Prudential Focused Bluechip Equity Fund, which should give diverse equity portfolio and debt accruals are going to be high and it will also give some capital appreciation of interest rate soften, which they are expected to looking at the indicators.