Investing across asset classes helps to earn healthy risk-adjusted returns. You can either do that on your own or choose a multi-asset scheme that can do it for you. Motilal Oswal Multi Asset Fund (MOMAF) is one such scheme and is coming out with a new fund offer (NFO). The fund is expected to invest in bonds, gold and Indian as well as American shares.
The scheme
Asset allocation is the most basic requirement to construct a healthy portfolio. But most of us ignore this aspect, as we tend to chase past returns. This way, we tend to invest more in assets that have done well in the recent past. MOMAF will invest 10-50 percent of its assets in equities (including international equities), 40-80 percent in debt securities and the remaining in gold. While it will invest in Indian equities and debt securities directly, it will rely on index and exchange-traded funds for taking exposure to international equities and gold, respectively. The scheme’s investments in shares will be dominated by large-caps. Bond investments will primarily be in bonds with the highest rating and duration of 3-5 years. The asset allocation will be reviewed twice a month at least.
What works
For those who cannot decide the asset allocation, MOMAF may help them do so. MOMAF is also the first asset allocation fund that would invest in international equities. It would use an in-house tool called Motilal Oswal Value Index (MOVI) that measures how cheap or expensive equities are. Most asset allocation funds stick to domestic equities, debt and gold.
Amol Joshi, founder of Plan Rupee Investment Services says, “Exposure to four non-correlated asset classes makes this an attractive investment option for investors who are looking for moderate returns with low volatility.”
What does not work?
As the scheme restricts its equity exposure to 50 percent, it will be classified as a debt scheme for taxation purpose. Gains earned on units of this scheme for more than three years will be taxed at 20.6 per cent. Gains from equity oriented funds are taxed at 10.3 per cent if they exceed Rs 1 lakh in a given financial year.
Should you invest?
The problem with multi-asset funds is that one can be vastly different from another, in terms allocation and the portfolio strategies. MOMOF comes with a slightly more complete asset allocation structure because it involves international equities too. A debt-oriented scheme can limit downsides, but could trail equity-oriented funds in rising markets.
If you are looking for double-digit returns, then you should avoid the NFO. Since the expected returns from this fund may be a tad more than those from fixed income options, you should be watchful of the expense ratio. All asset allocation models and rebalancing look good on paper. Execution of the same in a rule-based manner decides if a scheme builds a good track record. Let this scheme accumulate a track record before committing money later. The new fund offer closes on July 27, 2020.
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