Nippon India multi asset fund – short review

Its rainy season in India. Mutual fund AMCs are raining investors with lots of multi asset funds. Almost every fund house it’s coming up with multi asset fund. So why should Nippon stay behind. They are also coming up with their variant of multi asset mutual fund.

I think main reason is due to recent crash in stock market and subsequent rise in gold price, suddenly everyone has became aware of how important it is to have proper asset allocation. People with less risk capacity would definitely like to spread the money in different classes and thereby manage the volatility. In multi asset portfolio, if one asset like equity under performs during particular period then there is possibility that other asset like gold may perform better and balance the overall impact of equity downside.

What is multi asset fund?


By now, you must have read lot of reviews but still just in case you are not aware, as per SEBI guideline a mutual fund falls under multi asset category if it has minimum 10% allocation to 3 different asset classes. In in hybrid equity category, we have only two asset classes which are equity and debt. In multi asset fund generally we see commodity sneaking in as well.

What are pros and cons of multi asset fund?


If we have to create a portfolio of say three or four assets then one way is to to buy 3 or 4 separate mutual funds dealing in those assets. This gives us better control over proportion of each asset as per our individual investor needs. Someone may want 60% equity and 30% debt and 10% gold. Some other investor may prefer less debt and more gold. So having different funds gives you more control over asset allocation.

However this approach has administrative and monitoring overheads. You will need to maintain different funds and monitor them separately. Additionally over period of time different assets perform differently and you will need to rebalance – you sell one asset fund and buy other asset fund so that desired asset allocation is still what you wanted. This generally is little difficult to manage as well as has tax implications when you sell one of the fund. Multi asset funds excel in this area as they dynamically keep managing asset allocation on regular intervals.

Before you conclude on multi-asset mutual fund, please note there will be situations where you may need some money and you may have preference to sell say your debt fund. This is possible only if you have separate mutual funds in different assets. If you have a single mutual fund which is the multi asset fund then when you redeem units, all the assets will be proportionately reduced. This is bad if you wanted to sell only one particular asset but may be good for other investors who always want to keep asset allocation in original proportion.

Another drawback of multi asset funds is asset allocation is fixed. However in reality, your desired allocation changes with situation and age. So what you felt right allocation when you invested may not be same a decade later. But fund is not going y change as per your needs.

Based on above points, you can decide whether a multi asset fund is right for you or otherwise.

WHAT IS NIPPON INDIA MULTI ASSET FUND?


Now that we understood what is a multi asset fund, let us see what is new fund is all about. Nippon fund will invest 50% in Indian quities, 20% in foreign equities, 15% each in debt and gold. I am giving here their expected typical allocation but of course there will be some variation. So first point you need to ask yourself that is if this is the asset allocation you want for your portfolio. If that is not the case then it may be straight forward decision for you to avoid this fund at least for any significant investment. But if this location suits your investment profile then let us try to understand more about investment in each asset.

INVESTMENT STYLE

50% of the fund which will be invested in Indian equity will be treated like a multi cap approach. So round 60% or so so in large cap and rest in midcap.

For overseas equity allocation which is around 20%, benchmark is is MSCI index. This means around 65% to US market and remaining to other markets including Japan and Europe.

For commodity allocation which is around 15%, main investment would be wire gold ETF. There could be some small exposure to other metal commodities.

In debt allocation, major portion would be AAA instruments which are safer investments.

PEERS

Multi asset mutual fund is not a new concept for India with quite a few funds already operating in India since long. So what is it that Nippon offering different.

The notable competitor ICICI multi asset fund also has similar asset allocation and a proven track record of more than a decade. But all the 70% of its allocation is in Indian equity. If you want to to take some exposure to global equity then ICICI doesn’t have it. If however Indian equity is sufficient for your diversification need then an existing fund it is always better than a NFO. Also ICICI will be treated like equity fund for taxation and so better from that perspective.

Then there is SBI multi asset fund if you you wish to take higher exposure to gold asset. You can check this link for existing multi asset funds and see their past performance so so you get some idea about this category.

CONCLUSION

First of all some disclaimer and disclosure. Disclaimer is that this is not an investment advice and you should do your own research or consult financial advisor to decide about any investment. Disclosure is is that personally I have some allocation to ICICI multi asset fund. Now let’s get to the conclusion.

I would avoid this fund as I do for most of NFOs. Even if asset allocation is in line with your desired asset allocation, we should wait to see the performance of this fund for few years. If you want to attain similar asset allocation, you can buy different funds in different assets for now and once you see fund performing up to mark, then you can invest in this fund. Also I feel 20% asset allocation to global equity with predominantly USA allocation is not not good for an Indian investor. I feel overall 10% allocatio to global equity is sufficient. India bing emerging market is likely to give much better returns than other developed countries in long run. Indian investors should have some asset allocation to global equities but not to the tune of 20%.

That’s all for this review. Let me know your views about this fund and if you are investing or otherwise in comment section.

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