Radhika Gupta’s Edelweiss MF shifts focus to multi-asset allocation fund after debt taxation change

Multi Asset Allocation Funds, which come under the hybrid mutual fund category, invest at least 10 percent of their assets in at least three asset classes.

Asset Management Companies (AMCs) have been lining up multi-asset allocation schemes that invest across asset classes after the tax rules became unfavorable to debt funds

Edelweiss Mutual Fund is due to launch an open-ended scheme investing in equity, debt, commodities and in units of Real Estate Investment Trusts and Infrastructure Investment Trusts (InvITs) on June 5.

Edelweiss MF’s Chief Executive Officer Radhika Gupta has been offering teasers on the fund on social media these past few days.

Multi Asset Allocation Funds, which come under the hybrid mutual fund category, invest at least 10 percent of their assets in at least three asset classes with a minimum allocation of at least 10 percent to each.

Apart from debt, equity and gold, some funds also invest in silver and units of REITs and InvITs.

Under changes to the Finance Act, gains from investments in mutual funds, where not more than 35 percent is invested in domestic equities, will now be taxed at a maximum marginal rate.

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This means that debt mutual funds no longer enjoy the benefits of long-term capital gains (LTCG) and indexation for fresh investments starting April 1, 2023.

Experts say the ultimate gainer from the changes in the taxation would be certain hybrid funds, which invest in a mix of debt and equity in the same scheme.

Edelweiss Multi Asset Allocation Fund will predominantly be a fixed-income oriented portfolio with exposure to equities and gold and silver.

The portfolio construction strategy would be 35-40 percent equity arbitrage, 10-15 percent gold and silver arbitrage and 45-55 percent would be a fixed income component.

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In mutual funds, arbitrage is the simultaneous purchase and sale of a stock to take advantage of the price differential in spot and futures markets. This helps in increasing equity exposure in the scheme while avoiding a rise in the risk profile.

The fund offers a lower LTCG tax of 20 percent after indexation compared to traditional fixed-income products.

WhiteOak Capital Mutual Fund also recently launched a multi-asset allocation scheme.

Apart from the usual suspects, the scheme also in foreign equities, which is rare in multi-asset allocation funds.

Overall, four new funds have been launched under the multi-asset allocation category in the past seven months.

Multi Asset Allocation is among the best performing categories in hybrid funds on both a short-term and long-term basis.

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On a one-year period, Multi Asset Allocation funds have delivered an average return of 11.65 percent, while on a five-year basis, these funds have gained 9.29 percent, as per data available with Value Research.

The performance has varied with Kotak Multi Asset Allocator Fund of Fund delivering the best returns at 21.08 percent while Axis Multi Asset Allocation Fund gained 7.35 percent on a one-year basis.