Multi "Asset" Mutual Fund is worth investing!

There are only two goals when it comes to investing:

• Wealth Creation

• Wealth Preservation

If your target is Wealth Creation, then you must go for systematic investments and have that investment more towards Smallcap or Multicap. In a span of 7-10 years, these category gives the best return because smaller companies are growth compounders. In multicap category, you get exposure to companies that are more than Rs. 2,000 crores worth and also the large companies worth Rs. 10 lakh crores.

If you want to build wealth for your kids, you might want to read this - Mutual Fund for Child’s Future.

If your target is Wealth Preservation with returns better than FD, then your expectation of return should be around 9-12%. Once you determine this, your selection of investment becomes that much simpler. You want to have exposure to Equity, Debt and Gold.

• Equity - because they have the potential to give a return of 12-15%

• Debt - because they protect the capital and give a return of 6-8%

• Gold - because they are inversely related to equity in USD terms. Hence, when the market goes down, generally gold goes up. Also, when the market goes up, it has fallen relatively less.

If you are retired or about to retire, you might want to read this - Points for retirement.

We have already discussed India’s growth prospects, India’s market opportunity, PMS that gives more than 20% return etc. Each of these investments comes with a risk. However, today, we are talking about Wealth Preservation.

If you are someone who wants to plan your investment and the goal is to have capital safety, I have highlighted the options in order of safety they offer:

1. RBI Bonds (7.35%)/Government Security Bonds (7.1%)

2. Fixed Deposit with Banks (7.5-7.7%)

3. Corporate Deposits with Finance Companies (7.5-9%)

4. Debt Mutual Funds (6.5-7.5%)

5. Private/PSU Bonds (7-9%)

Any other options of fixed income will fall into one of these buckets. However, for people who wish to preserve their wealth but also expect returns little more than Fixed Deposits, there are a few options that mutual fund provides:

Balanced Advantage Mutual Fund:

These funds invest more into debt instruments (Government bonds and private bonds) when the equity market is expensive and they invest more into equity when the market has fallen and valuation is cheap. This results in a return in the range of 9-11%. Some of the funds that gave stable 3-year rolling return (any 3 year period) are:

• Kotak - 13%

• Tata - 14.9%

• Edelweiss - 12.2%

• ICICI - 12.4%

They follow different models of valuing the market. Eg. Tata Balanced Advantage Fund focuses on maintaining a balance between the stability of the portfolio in current times and the beta (respective volatility to market) of the portfolio in case the pace of the recovery surprises positively.

On the basis of forward and trailing PE valuations the equity allocations are arrived at. These allocations are then subject to ±10% variation depending on the fund manager's outlook on the following:

• Correlation with select global markets

• Market Momentum using price-based indicators to avoid early entry/exits in a directional market

• Volatility implied by volumes indicating extreme situations of fear vs complacency

Multi Asset Allocation Fund:

If you add Gold into the fund with Equity and Debt, the risk goes down further, and the return goes up.

• Kotak - 19.79%

• Tata - 15.91%

• Edelweiss - 12.2%

• ICICI - 25.06%

If we look at the detailed allocation of any of these funds Eg. Tata Multi Asset Opportunities Fund - Is an open-ended multi-asset allocation fund having multi-strategies, investing in equity, debt, exchange-traded commodity derivatives and Reits and Invits. The commodity portfolio (Exchange Traded commodity derivative portfolio or ETCD) seeks to generate returns through arbitrage and directional strategies in derivatives.

India’s growth story is very strong, however, incremental returns would be moderate. Those who want to protect and preserve wealth along with returns better than the fixed deposits could look to invest in these and other such funds.

We have been trusted by investors for more than 30 years and we endeavour to provide timebound updates in terms of economy and portfolio. We can talk about specific mutual funds, the economy in general, India's growth story, the fund manager's view, and much more. You can reach me at [email protected] or +91-9773687483 to get started.

Best regards,

Tejas Lakhani
Chartered Accountant, Finance Professional, ex-PwC, ex-ACC.