Tata Multi Asset Opportunities Fund – Should you invest?

Summary

Tata Mutual Fund house has launched a new fund “Tata Multi Asset Opportunities Fund”. Should you invest or give it a pass? Let’s review and see its suitability. It opened on 14th Feb and closes on 28th Feb 2020. Being open ended scheme, later in a week’s time, it will open for normal subscription. You can see information from fund house itself here.

1. Multi Asset? What does it mean

So what does a mutual fund really do. Invest in some asset class like equity or gold or debt and earn from its appreciation. Here in this case, fund will be investing not in one but in multiple asset classes. As you may be aware, so far mutual funds were investing only in equity, gold, debt and real estate assets. In India, if fund invests only in equity and debt, it is also referred as Hybrid fund but say in addition to these two asset classes, it also invests in another asset say gold, it is referred as multi asset fund.

This fund technically falls under category called – Hybrid Scheme – Multi Asset Allocation. You can click the link and see existing funds in this category, their performance, risk behavior to get some idea.

Now here is the difference. First time, we will see a mutual fund in India also investing in exchange traded commodity derivatives. Philosophy of fund seems to be that generally equity, debt and commodity do not appreciate or fall in same direction. So downturn in one asset will be offset by upturn in other asset. So when equity is down, commodity may give better returns and at times debt. Diversification will add stability to the fund returns. Let’s see if that is what you should bet on.

2. What is commodity derivative?

Since commodity is something new to a mutual fund, lets understand it at a high level. Asset like cotton, gold, copper, wheat, spices etc are called commodity. These are actual physical things in the world and are not like debt assets which are more like money borrowed.

So if a commodity like wheat is bought and for some reason if there is high demand for wheat, its price would rise and so does value of investment. This was just an example to understand but in real, investment is not done directly in commodity. Fund is not going to really buy say wheat and wait for increase in price. Don’t imagine a warehouse of wheat and fund manager guarding it. (That would be really funny though).

Fund instead would use derivative to trade in commodity. Derivatives help investor profit from commodity even without actually possessing them. But commodity is little complex compared to other asset classes due to quality checks, lifespan of commodity (in case of agriculture commodity), limited availability etc. In short this is all new area where fund is venturing into with faith that it may offer better returns when equity is not performing that well.

You can read on commodity trading here for some better understanding.

3. Asset Allocation of Tata Multi Asset Opportunities Fund

Tata Multi Asset Fund asset allocation
Tata Multi Asset Fund asset allocation

As you can see from above image from Scheme Information document of Tata Multi Asset Opportunities Fund , there is new component for commodity. So between 10 to 25 % will be invested in this new asset class. Equity exposure will be minimum 65 % and rest 35% is likely to be divided in debt, commodity and REiTs.

Multi Asset and Strategy

Since equity component would be around 70 % or so at most of time, please note returns would still be driven by equity segment. Remaining 30 % would be in rest three classes. In other Hybrid funds in market, all the 30 % may be in debt. In this fund however, say around 15 %(on average) is invested in commodity derivatives. So basically returns on this 15% of your money coming from commodity vs same coming from debt in a hybrid fund would be delta for this fund.

4. Risks and returns

Major part of Tata Multi Asset Opportunities Fund is still in equity (65-80%) so that is main driving force for risk as well as returns. That part will drive overall growth. Debt part is more for cushioning effect to reduce the impact of downturn and provide some stability. Commodity derivative is something new in this fund. If managed well that can give some extra edge over other pure hybrid funds which are having only equity and debt asset classes.

Coming to returns from commodity, you can refer an article here. You can see returns could be very high as well as downturn can be severe. Let’s consider two extreme scenarios 25% returns or 25% down.

So Let’s say you have invested Rs. 10,000 in this fund. Out of that Rs. 1500 would be in commodity trading. In other hybrid funds, these 1500 would be in debt and let’s assume return around 7.5%. So whatever returns this fund would be able to generate more on this 1500 in commodity over debt is your additional return over a standard hybrid fund.

Below is image from presentation of this fund. You can see full presentation here

Last 4 year returns in different classes
Last 4 year returns in different classes

If well managed returns over long run may be little more than hybrid funds. But commodity is much riskier than debt so you are taking higher risk as well ( on that 15% part of overall investment)

5. Fund Manager for Tata Multi Asset Opportunities Fund

Multi manager for Multi Assets. Of course no single person can be expert in all the assets. So they are rightly going with different managers for different assets. You can see their details from scheme information document as under.

Multiple Fund Managers for a Multi Asset Fund
Multiple Fund Managers for a Multi Asset Fund – right decision

6. USP of this fund ?

USP of fund is entry in commodity market in India. This is not something that is tried yet and I feel this is just beginning. Other fund house may soon launch similar schemes to tap the interest of investors in commodity market.

Fund Philosophy and Impact of commodities

7. Who are peers of this Fund

Theoretically Tata Multi Asset Opportunities Fund falls under Hybrid – Multi Asset Allocation category and you can see all the peers here. None of them more than 5 years old and neither their performance in 5 years is something worthy to talk about. But to be honest, they have some different model and asset allocation. So they are not true funds to compare to. But one indication we can get is that more you diversify in different classes, returns seem to be lesser.

8. Risk factors

1) First and foremost, you should understand underlying main asset is equity. So all the risks associated with equity are applicable here.

Moderately High Risk
Moderately High Risk

2) Compare to other hybrid funds which invest remaining part mainly in debt, here almost half (15 % of remaining 30%) may be in commodity which is definitely riskier than debt. So compared to standard hybrid aggressive fund, this carries more risk ( and of course opportunity to get more returns )

2) Being a multi asset fund, risk will be spread across assets. So on paper, it sounds to be less volatile than a pure equity fund but there is no guarantee to that or at least I don’t have data to conclusively say so.

9. Tax

For tax purpose, this fund will be treated like an equity fund (now you know why fund smartly kept minimum equity proportion as 65%).

Long term capital gains will be taxed 10% (if held for more than 1 year) or Short term capital gains will be taxed 15% (if held for less than 12 months)

Disclaimer


Before you read conclusion – a disclaimer. Please note – I am not advising you on any financial decisions and you should do your own research and consult your financial advisor before making any financial decision. This article should be treated only as my personal view.

10. Conclusion

Interesting but not for all

I think this fund has small edge in returns over other aggressive hybrid funds due to commodity exposure. But this is a new area being tried out by any fund. So there is no history to derive conclusive number as to how much that edge would be.

If you liked the concept of investing in commodity but do not have expertise to do so, then one can invest in this fund. You are getting exposure to different classes in one fund. That too with good taxation benefit. So basically for a balanced or aggressive risk profile investor who wants to explore commodity can give it a try. Note that this is open ended scheme so no need to rush immediately. No harm in sitting back and observing it for some period. Check portfolio and invest later.

But if you are relatively new mutual fund investor then you should better start with some good fund from Hybrid – aggressive category. They are proven funds in well known asset classes – equity and debt.

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