NFO review: Motilal Oswal Multi Asset Fund aims to beat business cycles

The scheme will invest in equity, international equity index funds/ equity ETFs, debt and money market instruments and gold ETFs

Kumar Shankar Roy Jul 15, 2020

motilal oswal multi asset fundMotilal Oswal Asset Management Company has announced the launch of Motilal Oswal Multi Asset Fund. As the name of the new product suggests, this will be an open-ended fund belonging to multi asset allocation category.

The fund’s investment objective is to generate long term capital appreciation by investing in a diversified portfolio comprising of Equity, International Equity Index Funds/ Equity ETFs, Debt and Money Market Instruments and Gold Exchange Traded Funds. Motilal Oswal Multi Asset Fund is the ninth fund in its category. The fund will be open for subscription from July 15, 2020 and the new fund offer is slated for closure on July 27, 2020. It will re-open for continuous subscriptions later.

In this article, we will look at the various facets of the latest product, the multi asset allocation category. Keep reading.

Why now

Motilal Oswal AMC says it is launching Motilal Oswal Multi Asset Fund with an aim to help conservative investors survive the tough conditions of equity markets and lackluster interest rates in fixed income markets. It promises to do this by keeping your scoreboard ticking with the help of a diversified basket of four asset classes. Having the right asset allocation is the key to navigate volatile periods.

Why multi asset route

Different asset classes react differently to business cycles, changes in economy & geopolitical realities and hence have different levels of risk.

As per Motilal Oswal AMC, allocating funds solely to a single asset class is not prudent as it is prone to behave inconsistently, go through its own cycles and may not garner efficient inflation and risk-adjusted returns.

Asset allocation tries to balance the risk by dividing assets among investment vehicles. Low correlation among different asset classes provide the portfolio with an effective hedge lowering the volatility of the portfolio.

In Motilal Oswal Multi Asset Fund, Equity, Equity related instruments and International Equity Index Funds/ Equity ETFs will have between 10-50% allocation, Debt, Money Market Instruments will have between 40-80% allocation and Gold Exchange Traded Funds will have 10-20% allocation.

The standout feature of this fund is overseas equity exposure. Since Foreign Securities are not to be treated as a separate asset class as per Sebi norms, accordingly international equity index funds/equity ETFs have been included in equity and equity related instruments. The scheme intends to invest in international equity index funds/equity ETFs upto 20% of net assets.

Take a look below at multiple assets have performed over the years.

Different asset classes

How assets will be invested in

Indian Equities: A portfolio of large cap stocks will be selected based on proven Q-G-L-P philosophy.

Debt and Money Market Instruments: An AAA portfolio with a 3-5 year average maturity, heavy on G-Sec and SDL’s.

International Equities: Through allocation to units of Motilal Oswal S&P 500 Index Fund.

Gold: Through units of a Gold ETF Fund.

The benchmark for Motilal Oswal Multi Asset Fund is 30% Nifty 50 TRI + 50 % Crisil Short Term Gilt Index + 10% Domestic Price of Gold + 10% S&P 500 Index (TRI).

The fund will use Motilal Oswal Value Index (MOVI), is a proprietary index of Motilal Oswal Asset Management Company.

When it is Low MOVI = Cheap valuations, then there will be higher equity allocation.

When it is High MOVI = Expensive valuations, then there will be lower equity allocation.

The asset allocation in the fund will be reviewed twice a month based on the MOVI bands. Take a look below to see how this works.

Dynamic rebalancing

Current MOVI level suggests about 17% domestic equity exposure.

Taxation

Non-equity taxation.

Other NFO details

Investors can invest in the fund through lumpsum or SIP mode with minimum subscription of Rs 500 during NFO and ongoing period.

The scheme has two plans:
(i) Regular Plan and (ii) Direct Plan

Each plan offers growth option.

Exit Load:
1%- If redeemed on or before 3 months from the date of allotment.
Nil- If redeemed after 3 months from the date of allotment.

Fund Managers – Siddharth Bothra, Abhiroop Mukherjee, Herin Visaria and Swapnil Mayekar.

Multi asset category

This category has eight funds already. These include ICICI Pru Multi Asset, UTI Multi Asset, Tata Multi Asset Opportunities and Axis Triple Advantage.

But, the category’s track record isn’t great. There are a number of reasons why this could have happened.

Firstly, some multi asset funds become quasi-equity funds in the quest for equity taxation. Asset allocation should not be driven by tax gain potential. Using short positions on a long equity portfolio to change taxation results in sub-optimal returns on the short component of asset allocation.

Secondly, the quest for higher returns and beating peers often makes multi asset funds riskier. When such schemes compete with equity funds or balanced advantage or dynamic equity funds, then the beauty of the product is lost. Unfortunately, then such multi asset funds becoming balanced funds with some gold.

Thirdly, marginal asset classes are given more importance. Certain assets like gold and international equity are meant to reduce the amplitude of return fluctuation. But in some multi asset funds, there is over-reliance, which dilutes the fund appeal.

Take a look at returns of some existing multi asset funds.

Fund Name 3 Yr Ret (%) 5 Yr Ret (%)
Axis Triple Advantage Fund 5.91 6.28
Essel 3 in 1 Fund 2.79 4.56
Franklin India Multi Asset Solution Fund -4.22 0.05
HDFC Multi Asset Fund 3.87 6.05
ICICI Prudential Multi Asset Fund 2.36 6.99
Quant Multi Asset Fund 3.48 6.06
SBI Multi Asset Allocation Fund 6.47 7.62
UTI Multi Asset Fund 2.51 4.18
Regular plans     NAV as on July 13, 2020

RupeeIQ take

Asset allocation works because there are different levels of correlation among different asset classes. This provides the portfolio with an effective hedge.

The key to success for a good multi asset fund is regular rebalancing and dynamically shifting across asset classes.

The fund-house is pitching Motilal Oswal Multi Asset Fund as a fixed income oriented product. It is clear that the fund will not do multi asset simply for the sake of it while dishing out equity returns. That is good clarity for investors.


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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