It’s the season of hybrid mutual fund (MF) schemes. The Sundaram Multi Asset Allocation Fund (SMAAF) launches today, January 5. The scheme will invest across multiple asset classes, namely equity, gold, and fixed income.
What’s on offer?
The fund aims to deliver consistent returns across market conditions by diversifying across three asset classes. Of these, it would focus more on equity and gold.
Despite being a multi-asset allocation fund, SMAAF will offer the advantage of equity taxation as it will invest at least 65 percent in equities. The scheme will invest maximum 25 percent in gold and minimum 10 percent in fixed income instruments.
Per ACE MF, SMAAF will be the 17th multi-asset allocation fund in the Rs 50 trillion Indian MF industry. Given the rising equity and gold prices throughout 2023, and high interest rates, fund houses and advisors hawked multi-asset allocation funds aggressively to reduce the chances of incurring losses at such levels.
Investors also saw merit in these funds. Multi-asset funds saw a net inflow (more money came in than went out) of about Rs 20,000 crore. This was the third-highest inflow among various MF categories in 2023, after small and mid-cap funds. Arbitrage funds (meant for the short-term), passive funds, and thematic funds also saw more net inflows.
What works?
The scheme’s diversification is its biggest asset. As the fund invests across multiple asset classes, a sharp drop in the fortunes of one class (say, equity) won’t drag the fund’s net asset value (NAV) down.
Per the fund house’s data, the Nifty 50 index (representing the equity asset class) was the top performer (among equity, gold, and 10-year government securities representing fixed income) in 2021, and 2017. Equity as an asset class did exceedingly well in 2023 as well, especially small- and mid- cap stocks. Gold was the outperformer in 2018, 2019, 2020, 2022 and 2023 on the back of Covid and geo-political uncertainties due to the Russia-Ukraine and Israel - Hamas wars, which are still going on. Gold continued its good run
The fund aims to manage its equity conservatively, given the scheme’s nature. Bharath S, the scheme’s equity co-manager (SMAAF has five fund managers in total that’ll divide the responsibility of the three asset classes) says that it will invest 75-80 percent of the equity allocation in large-cap stocks. “The remaining 25-30 percent would be invested in mid and small-cap stocks. We will follow a flexi-cap strategy,” he added.
What doesn’t
While Sundaram Mutual Fund feels the need to fill its product bouquet with a category that’s been in vogue lately, it’s a crowded field. Six multi-asset allocation funds were launched in 2023 itself. The category has 16 schemes with combined assets worth Rs 50,848 crore as on November 2023, per ACE MF.
Different multi-asset allocation funds follow different strategies, which makes it a bit tricky to compare funds. Apart from equity, debt and gold, some funds like DSP Multi Asset Allocation Fund and Nippon India Multi Asset Fund also invest in international equities. Edelweiss Multi Asset Allocation Fund invests in silver as well. Schemes like SBI Multi Asset Allocation Fund invests in Real-Estate Investment Trusts (REITs), although the investments are miniscule.
SMAAF will focus primarily on equity and gold. “We have observed that among alternative asset classes, gold truly contradicts equity; there is hardly any corelation between these two asset classes. This ensures diversification,” said Bharath S.
While this makes sense, it remains to be seen how a low allocation to fixed income would work, given that interest rates are expected to fall this year onwards. When interest rates fall, prices of debt securities (and NAVs of funds that invest in them) rise.
Moneycontrol’s take
On paper and in principle, a multi-asset allocation looks good and promising. But like all actively-managed funds, the performance of SMAAF will also depend on the fund managers’ decisions. How fund managers decide the asset allocation is also crucial. In 2023, the maximum return in this category was 29 percent, the minimum 13 percent. In 2022, the maximum was 17 percent, but the minimum was a loss of 6 percent. A multi-asset strategy is a good thought, but it’s not a silver bullet.
Wait for the fund to have a track record and then consider it.
Dhuraivel Gunasekaran contributed to this story.
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