has recently launched its asset allocation fund and three more fund houses are
planning to launch similar funds.
close end funds, US and Europe funds, AMCs are trying their luck with fund of
fund schemes which invest in multiple asset classes.
are offering these asset allocation schemes to investors in the wake of
volatility and waning interest in equity funds. The primary objective of these
funds is to protect investors from any shocks by modulating the asset
allocation so as to offer capital appreciation with downside protection
DSP BlackRock launched its Dynamic Asset Allocation Fund which spreads its
assets in debt and equity based on Yield Gap ratio, which is the ratio of debt
market yield to equity market yield.
is how the fund works. 10Y G-Sec yield is used as the proxy for debt market
yield, while earnings yield of equity markets is simply the reciprocal of the
Nifty Price/Earnings ratio. By evaluating the ratio of these two yields, one
can assess whether equity markets are overpriced or underpriced relative to
debt markets. The model also considers the Modified Yield Gap ratio, which uses
1Y G-Sec yield in the numerator.
The fund will calculate
both these ratios on a daily basis. If the difference between the two ratios is
greater than 0.05, the fund will use yield gap ratio and in case the difference
is less than 0.05, the fund will use modified yield gap ratio.
“Our investors are saying that if fund managers
are so intelligent then why they can’t help us in getting out of equity at the
right time. We all are good at telling people when to enter market. But it is
very tough to tell people when to get exit equities. We felt that the active approach
of the fund with a built-in advice model will resonate well with investors. A
large chunk of advisors and investors are looking for this kind of fund,” said
Ajit Menon, EVP and Head of Sales & Marketing, DSP BlackRock Mutual Fund in
an earlier interview with Cafemutual.
Three more fund houses (Principal, Reliance and
Motilal Oswal) are planning to launch similar funds, though with a broader
investment mandate. One distinctive feature of the asset allocation funds which
Motilal Oswal and Reliance are planning to launch is that these funds will also
invest in overseas fund of funds. So far, existing asset allocation funds in
the industry have a mandate to invest only in debt, equity (domestic), and
Oswal’s fund is called MOSt Asset Allocation Fund - Series 1. The scheme will
come with two plans - equal weight plan and dynamic plan. This fund will invest
across three asset classes – equity, debt and gold.
Equal weight plan
addition, the fund will also provide geographic diversification by invest in
domestic overseas fund of funds. The scheme will follow a customized benchmark
which consists of 40% of CNX 100 Index + 40% of Crisil Composite Bond Fund
Index +20% of prices of gold.
Mutual Fund has also approached SEBI to launch a fund of fund scheme which will
invest in equity, debt and gold funds. The fund will follow a customized
benchmark of 40% of CNX 100 Index + 40% of Crisil Composite Bond Fund Index
+20% of prices of gold.
Principal Mutual Fund has filed an offer document with SEBI to launch Principal
Asset Allocation Fund of Funds. This scheme will come with five plans – conservative,
moderately conservative, moderate, moderately aggressive and aggressive.
funds are not new to the market. AMCs have launched many funds which shift
asset allocation based on certain back tested models like PE, arbitrage and
derivative opportunities. One advantage of such funds is that investors don’t
need to worry about the entry and exit points while investing as the asset
allocation is handled by fund managers.
the contrary, critics point out that the performance of such funds can be bad
if equity markets are down. Some suggest that it is better to put money in debt
and equity funds separately.
allocation funds work on two models – some funds directly invest in stocks
while others invest in existing funds (through a fund of fund structure). One
flipside of a fund of fund structure is that it could come with higher expense
ratio because the fund of fund invests in another fund which also has its own
asset allocation funds have worked well. Franklin Templeton’s Dynamic PE fund
is one example which had performed wonderfully. DSP BlackRock’s fund also looks
promising,” said Vinod Jain of Jain Investments.
he cautions that mixing too many asset classes in one fund may not work.
has become difficult to sell a pure vanilla diversified fund. There has been a
flurry of new fund offers with divergent investment mandates (close end, US,
Europe, FMPs, capital protection funds). AMCs have to come out with new
strategies to woo investors,” said a Mumbai based distributor on the condition