Fund houses look at multiple assets funds to gain retail participation

“It is a good option for investors to invest in multiple asset funds as they provide diversification of assets

June 29, 2012 11:46 IST | India Infoline News Service
Weak markets are making fund houses to look at new ways to attract investors’ interest in mutual fund schemes. Many fund houses are considering multiple asset funds—that invest in gold, debt and equities—to bring in retail participation as NAVs (net asset values) of these funds have hit their 52-week highs.

Suresh Sadagopan, principal-financial planner, Ladder7 Financial Advisories, said, “Since multiple asset funds are not directly correlated and in case of gold they are negatively correlated especially with equity. Hence, the overall portfolio performance would balance out and give better returns than investing on one asset class.”

Multiple asset mutual funds have given 8.2%-10.9% returns in the past year (till June 22). Except MFs that invest in the defensive FMCG (fast-moving consumer goods) and pharma sectors and funds with exposure to stocks of overseas companies, all other equity MF categories were in negative in the one-year period.

Amar Ranu, senior manager-research & advisory (third party products), Motilal Oswal Wealth Management, said, “Given the volatility in the global and domestic markets, everyone prefers to hedge his portfolio. In India, as financial products to hedge against inflation are not in place, investors normally use gold as an alternative to hedge against inflation—given its negative or near to zero correlativity to equity. So, a blend of these three assets would acts as the best combination. However, as the equity market advances, gold and debt may be on back stage and the product, per se may not give returns in that level.”

Pankaaj Maalde, head-financial planning, ApnaPaisa.com, explained, “Usually, it is not advisable to invest in multiple asset funds as assets allocation of an investor will be decided by the fund manager. Many times, this asset allocation would be affected by the changes made in the scheme by the fund manager. For instance, a savvy investor would want to invest a major chuck of his portfolio in equity, say 65%, for a 10-year period. However, the fund manager would invest only 35% in equity. And if the equity MFs perform well over a 10-year period, the investors’ returns may be affected. Secondly, if a fund does not invest 65% or more in equity than the investor will be taxed as debt fund.”
Mr Sadagopan elaborated, “It is a good option for investors to invest in multiple asset funds as they provide diversification of assets. If they are doing this on their own, then investing in multiple asset funds may not be required as one can fine tune his investments in multiple asset classes individually for better returns.”

“Investors need to keep SIPs (systematic investment plans) going on a continuous basis to ensure that investments are being made at all index levels of the market. This will ultimately yield good results when the markets move up,” added Mr Sadagopan.

Mr Maalde, further added, “In most cases, we do not recommend more than 10% investment in gold and these funds may invest up to 20% in gold which is not required as gold has is currently at its all time high. One should not make his investment decision based on the current volatility in the stock market but choose asset class depending on time horizon of his financial goal. It is more advisable to invest in separate funds of debt, equity and gold according to the specific goal based asset allocation to track them in best possible way.” 

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