Asset allocation is all about how much investments you want to make across investment avenues. But if this sounds like a tough task to you, then Motilal Oswal mutual fund has a solution for you.
The fund house has rolled out two schemes that do the asset allocation for you. The umbrella scheme is called Motilal Oswal Asset Allocation Passive FoF (MOAPF).
What’s on offer
You get two options with the MOAPF – aggressive and conservative. Each scheme has its own distinct asset allocation pattern. Both are fund of funds (FOF); they will invest in other mutual fund (MF) schemes.
The aggressive scheme will invest 50 percent in Indian equities, 20 percent in international stocks, 20 percent in debt, and 10 percent in gold. The conservative scheme will invest 30 percent in Indian equities, 10 percent in overseas shares, 50 percent in debt, and 10 percent in gold.
The gold allocation will happen via investments in ICICI Prudential Gold exchange-traded fund (ETF). The rest of the schemes will have in-house investments.
The asset allocation mentioned will not change. But the fund house would rebalance the allocation once a quarter, if the underlying weights change by five percent or more.
What works
Both options will invest in passively-managed index funds. This minimises fund manager risk and keep the overall costs low.
Periodic rebalancing, if and when necessitated, is a positive. Asset classes (equities including foreign equities, fixed income and gold) that have a low correlation with one another, ensure that the portfolios are adequately diversified.
Indices and asset classes have been chosen with care to give optimal returns. Investment in gold helps reduce portfolio volatility in turbulent times and government securities carry no credit risk for investors. The fund’s investments in fixed income will only be done through Motilal Oswal Nifty five-year benchmark G-sec index fund. And its allocation to the Nifty 500 index fund ensures some presence of mid and small cap stocks.
“An automated approach to investing as per a stated asset allocation policy brings in discipline and works in favour of investors, as many investors try to chase asset classes based on recent performance,” says Vishal Dhawan, Founder and Chief Financial Planner, Plan Ahead Wealth Advisors.
What doesn’t
Investments in passively-managed funds also mean that the returns would be in line with the underlying indices.
Harshvardhan Roongta, Certified Financial Planner, Roongta Securities finds this product attractive for passive investors looking to invest in line with the underlying asset allocation of the schemes. “However, savvy investors are better off making a customized portfolio built as per their own investment needs using a mix of passively and actively managed products,” he adds.
G-sec investment exposes the investor to interest rate risk, especially in times when the yields move up quickly.
Though investors enjoy tax-efficient rebalancing to their asset allocation, the schemes are treated as bond funds for taxation purpose. Gains earned on units held for more than three years are taxed at 20 percent post indexation.
What should you do?
The scheme appeals to those who prefer passively-managed funds. It intends to optimise returns over a longer time by taking an asset allocation approach. Which is, in fact, the right way.
But mind the fact that the underlying funds are passively-managed. When small and mid-cap funds don’t do well, this fund may just give modest returns. And as Dhawan says, unless you aim to invest a substantial portion of your investments in this scheme, it won’t materially make a difference to your overall portfolio.
The new fund offer closes on March 5, 2021.
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