NFO review: Nippon India Multi Asset Fund debuts; how different is it from its peers

The offering will invest 50% of its assets in Indian equities, 20% in international equities, 15% in commodities; NFO opens on Aug 7 and closes on Aug 21

Kumar Shankar Roy Aug 6, 2020

Nippon India Multi Asset FundIn the last 7-8 months, different fund-houses have launched multi asset funds. Joining the bandwagon is Nippon India Mutual Fund with the launch of Nippon India Multi Asset Fund (NIMAF). The product has been positioned as an open-ended scheme looking at providing one stop solution which may help to reap the benefit of growth of equity, the stability of debt, and diversification from commodities. The New Fund Offer (NFO) opens on August 7 and closes on August 21. In this article, we will revisit the multi asset funds category and find out whether Nippon India Multi Asset Fund is really different from peers. Read on to know more.

Why invest in different assets

Readers of RupeeIQ have read about our asset allocation articles. Simply put, asset allocation is all about distributing your investments in different asset-classes.

Today stocks are doing well. Gold is shining too. But, debt is down. This is typical. All asset-classes do not behave in the same manner and so provide opportunities of growth.

According to various studies, it is not the decision to invest in one asset class like equity/stocks that determine returns. It is actually asset allocation that determines 90% of portfolio returns. In short, investing in multiple assets helps you maximize the benefits of asset allocation.

Assets correlation Nippon India Multi Asset Fund

Nippon India Multi Asset Fund mandate

Over the last decade or so, we have very clearly seen how winners keep changing in terms of asset classes. Today if you look at the five-year returns, gold is the best. But if you look at three-year returns, equity is the best. In a two-year term, debt is the best. It is impossible to predict with great accuracy which asset class will do well. Hence, staying invested in different asset-classes is important.

This new fund will invest 50% of its assets in Indian equities, 20% in international equities, 15% in commodities and the remaining money (15%) in debt & money market instruments. The exposure mentioned is subject to change within the limits of SID (scheme information document) depending on fund managers views and the market conditions.

The 20% exposure to global stocks is interesting. Manish Gunwani, CIO-Equities, added, “Investors tend to have a home-bias and invest mainly into domestic equities. We believe it is important for investors to have a foot in every major investible asset classes, including international equities…which could help them balance returns across cycles.”

Digging deep into investment philosophy

For the Indian equity investment portion, Nippon India Multi Asset Fund will take a multi-cap approach. It will have no bias towards growth or value stocks, but the stock selection will be based on gap between fair value and market price. The 50-70% will be largecaps, and rest in midcaps. It will have active share approach, which means it will deviate, within limits, as far as benchmark’s sectoral exposure is concerned.

For the overseas equity investment portion, it will be with reference to MSCI World Index i.e. 65% weight to US, 20% to Japan & Europe including UK, and rest in Others. The fund will broadly keep the country exposures similar – especially to US and Europe. It will have approximately 25 stocks – 15 in US, 5 in Europe including UK and the rest in others.

For commodities investment, there will be investment in Exchange Traded Commodity Derivatives (ETCDs) of Metals, Energy and Indices as permitted by SEBI from time to time. Gold will be a key diversifier given low correlation to equity & debt. Out of the overall 15% allocation to commodities, minimum 10% exposure will be to Gold through ETF or ETCD route (fund may also invest in Sovereign Gold Bonds) while the rest 5% allocation will be to other commodities: Silver, Energy, Commodity Indices & other commodities through ETCDs. In absence of any opportunities, the fund may follow arbitrage strategy in commodities.

For the debt/fixed income investment, Nippon India Multi Asset Fund will manage the portion with a moderate duration profile, following a duration range of 1.25 – 2.25 years. The focus will be accrual income and to capture short end of the yield curve with a focus on stable returns with moderate volatility. Predominantly, it will invest in good credit quality assets (at issuer level – minimum 85% AAA, rest AA+ & AA; at instrument level – AAA/ A1+ >=85%, short term will not be below A1+).

Nippon India Multi Asset fund chart

How the fund differs from peers

The multi asset allocation fund group contains big funds like ICICI Pru Multi Asset Fund with over Rs 10,000 crore in investor assets, followed by UTI Multi Asset Fund, Tata Multi Asset Opportunities Fund, Axis Triple Advantage, HDFC Multi Asset Fund, SBI Multi Asset Allocation and Quantum Multi Asset FoF.

ICICI Pru Multi Asset Fund – The fund has net equity level of 65% – 80% based on an in-house equity model and fund manager view. The sector allocation and stock selection is a counter-cyclical approach with flexi cap bias. Derivatives exposure can be there to mitigate downside risks. The scheme invests a minimum of 10% – 35% of total assets in debt securities and money market instruments (for accrual income and potential capital appreciation). The indicative allocation towards ETCDs/units of Gold ETFs is 10-30% and towards REIT & InvITs/preference shares is 0-10%.

UTI Multi Asset Fund – The net equity range of this fund is 40% to 80%. The style is blended, with a growth tilt. At least of equity will be 75% – 80% in largecap, balance in midcap & 0% in smallcap. Debt exposure range is in 10% to 25%, with focus on accrual strategy. The investment will be in shorter to medium duration papers based on in-house views. Arbitrage range is 0% to 25%. Gold range is narrow (10% to 11%) and there will be no active calls.

Fund details

The minimum investment required is Rs 5,000 and in multiples of Re 1 thereafter.

The fund will be managed by Manish Gunwani, CIO – Equity Investments along with Ashutosh Bhargava, Fund Manager & Head Equity Research, Kinjal Desai, Fund Manager – Overseas; Amit Tripathi CIO – Fixed Income and Vikram Dhawan Head – Commodities.

Benchmark will be 50% of S&P BSE 500, 20% of Crisil Short Term Bond Fund Index & 30% of Thomson Reuters – MCX iCOMDEX Composite Index.

Exit load of 1% is applicable if redeemed or switched out on or before completion of 1 year from the date of allotment of units. Nil, thereafter.

RupeeIQ take

Different asset-classes have different levels of risk. By bringing domestic equity & debt, international equities and commodities in one basket, Nippon India Multi Asset Fund aims to provide an appealing solution. The trick is to dynamically manage the asset exposures. The fund is not a product that has its foundation in fixed income (unlike the newly launched Motilal Oswal Multi Asset Fund). Equity remains the core play in this hybrid fund. Naturally, returns should be higher than conservative products if asset allocation is done well.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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