ICICI Prudential Passive Multi-asset Fund of Funds NFO review: Should you invest?

ICICI Prudential mutual fund is rolling out a new scheme that combines two concepts that its chief investment officer, Sankaran Naren, is most excited about. Now, the ICICI Prudential Passive Multi-Asset Fund of Funds (IPMAF) will invest across multiple asset classes – domestic equity, fixed income, overseas equity and gold. And it will only invest in passively-managed exchange-traded funds (ETFs) and index schemes.

What is the fund about?

IPMAF will invest 25-65 percent of its assets in domestic ETFs and index funds, another 25-65 percent in debt ETFs and index funds, 0-15 percent in gold ETFs and 10-30 percent in international passive funds. Led by Naren, a team of six fund managers will take care of the scheme. Once they internally decide the allocation towards all the four asset classes, each of these fund managers would then look into their specialisation area to ascertain how to invest.

For instance, within equities, IPMAF will decide if money should be invested in large, mid or small-caps. Similarly, the debt allocation would be decided based on, basis on the house’s view on where interest rates are headed. For international investing, Naren and his team have shortlisted 30 foreign ETFs across countries and themes. “We are open to investing in other fund houses’ schemes as well,” says Naren.

What works

Many of us forget to do our asset allocation in overheated markets. Instead, we tend to stick to performing assets as long as markets keep rising. By straddling global and Indian equities, fixed income and gold, IPMAF aims to take money off the table consistently and reduce the downside.

When the fund does your asset allocation, it also turns out to be tax-efficient. By restricting itself to passive funds, the house eliminates fund manager risk, at least partially. The total expense ratio in the regular plan, including the expense ratios of the underlying funds, will be one percent, which is not expensive.

What doesn’t

While the fund calls itself passively-managed, it isn’t entirely passive. The fund managers would jointly decide the asset allocation based upon a number of macro factors they track. Then again, how much money it would allocate within each asset class is also not entirely a passive decision.

As an example, the ICICI Prudential Balanced Advantage Fund has successfully altered its equity allocation based on its internally-developed formula. However, IPMAF is a complicated fund to manage, given the vast areas it wants to invest in. For instance, within equities, it would not just consider broad-based equity ETFs and index funds, but also invest in various smart-based ETFs and sector and theme-based ETFs.

That doesn’t deter Naren, though. “As the stimulus measures get withdrawn slowly, equities might get volatile. Interest rates are also about to rise, so making fixed-income investments will get challenging. Going forward therefore, a multi-asset philosophy is likely to provide a better outcome in the near term,” he says.

Should you invest?

IPMAF is an ambitious fund in its approach. Given the complex nature of the fund, it remains to be seen how it toggles among various options. The idea is promising, but execution is the key. Remember, the fund house has at least 60 underlying schemes of various hues across all the asset classes to choose from. ICICI Prudential AMC comes with a good track record in reading the big picture – the macro scene. That helps in asset allocation decisions.