Franklin India Multi Asset Fund bets big on gold

Nikhil Walavalkar

Given buoyant sentiment in equity and debt, gold as an investment option has taken a back seat. Most investment experts advise staying away from gold and financial planners too are advising keeping maximum 5% to 10% money in gold as portfolio insurance. However not all are avoiding gold. Franklin India Multi Asset Fund (FIMAS) has invested 22.5% of scheme money in gold.

Harshendu Bindal, President, Franklin Templeton Investments India says, “In FIMAS the allocation to any asset class is purely based on long term fundamental trends and is not based on the short term market movements. The fund is likely to be agile to rebalance the exposure to any asset class in case the fundaments factors suggest any change. As fundamental investors, we look to various economic, valuation and sentiment parameters, as well as more technical indicators such as sentiment and risk forecasts, to make our asset allocation decisions.”

As per the maiden scheme portfolio disclosure by the mutual fund, the scheme has invested 22.5% in Goldman Sachs Gold ETF, 29.5% in Franklin India Bluechip Fund and rest in Franklin India Short Term Income Plan. The scheme claims to provide an asset allocation option to investors by dynamically investing in equity, gold, debt and money market instruments by investing in mutual fund schemes. The allocation to gold is surely on the higher side given the bearish sentiment that surrounds gold. “Gold has historically been considered a hedge against inflation and is advocated as an important asset class. The allocation to gold has been a good diversifier in Indian investors’ portfolio as it is a proxy allocation to foreign currency (USD),” says Harshendu Bindal.

Though gold has done well in recent past, over past one year it has not moved much. Exchange traded funds investing in gold has offered a loss of 2% over one year. “Gold has moved up in last one month, but view on gold in medium term is bearish,” says Ashish Shanker, head investment advisory, Motilal Oswal Wealth Management. Interest rates in USA may go up this year and US dollar may appreciate against other currencies which is not good for gold, he adds. He advises investors to keep 5% to 10% of the portfolio in gold depending on the client’s risk tolerance, from the diversification point of view.

FIMAS has a cautiously optimistic stance on equities. “While re-rating already factored in valuations the headroom for P/E multiple expansions is limited. Hence incremental returns are likely to be led by corporate earnings growth. At this juncture, while there is general consensus on the recovery, there may be bouts of volatility due to global ‘risk off’ factors and hence a cautiously optimistic stance is warranted,” explains Harshendu Bindal.

Multi asset funds can be a good investment option in long term for investors. Hemant Rustagi, CEO, Wiseinvest Advisors advises opting for multi-asset funds. These funds help in rebalancing exposure to various asset classes from time to time without attracting taxes. If done by investor himself using multiple schemes investing in equity, bonds and gold, there is a possibility of paying short term capital gains tax which in turn pull down overall portfolio returns in long term.

These funds also help individuals to invest across asset classes without getting influenced by factors such as market sentiment, personal biases and herd mentality. “As the fund is an asset allocation solution, I would suggest that investors should come with a long term investment horizon with an aim to generate superior risk-adjusted returns over market cycles,” advises Harshendu Bindal. Investors with more than five years time frame can look at these funds. However a point to note is that these funds are treated like a debt fund for the purpose of taxation. Capital gains arising out investments held for more than three years, are taxed at 20% post indexation.