Since the pandemic, investing in equity market is extremely volatile, debt markets are in turmoil due to aftermath of massive credit default, and successive rate cuts have caused confusion for investors over safety, returns, and risk.
However, the gold market, particularly the index, has soared high to show that gold is a safe haven indeed against an economic crisis.
On the backdrop of this, Nippon India Mutual Fund has launched a Nippon India Multi Asset Fund, including several other fund houses.
It believes that weak or negative correlation between asset classes helps in Portfolio Diversification. Different Asset Classes outperform in different years. Hence, staying invested across asset classes is quintessential. Thus, it is asset allocation that’s the key to long-term wealth creation.
A diversified multi-asset fund usually can generate long-term capital appreciation by investing across asset classes with lower volatility, with an aim to provide superior risk-adjusted returns. Diversification within the asset classes provides the portfolio with a fair amount of variation.
Diagram 1: Investment rationale of NIMAF explained
Different asset classes react differently to business cycles, changes in the economy, and geo-political realities over different time periods. Hence, it is difficult to predict which asset class will outperform the respective index and is associated with different levels of risk. Asset allocation tries to balance the risk by dividing assets among investment vehicles.
However, do note that NIMAF will allocate its assets primarily (and heavily) to equities in a range of 50% to 80%, including exposure to international funds, followed by debt and gold investments. The fund is a moderately high-risk investment position and consider only if you have an investment horizon of 5 years or more.
Table 1: Details of Nippon India Multi Asset Fund (NIMAF)
|Type||An open ended scheme investing in Equity, Debt and Exchange Traded Commodity Derivatives and Gold ETF||Category||Multi-asset allocation hybrid fund|
|Investment Objective||To seek long term capital growth by investing in equity and equity related securities, debt & money market instruments and Exchange Traded Commodity Derivatives and Gold ETF as permitted by SEBI from time to time.
However, there can be no assurance or guarantee that the investment objective of the Scheme will be achieved.
|Min. Investment||Rs 5,000 and in multiples of Re 1 thereafter||Face Value||Rs 10 per unit|
|Entry Load||Not Applicable||Exit Load||
|Fund Manager||Mr Amit Tripathi, Mr Manish Gunwani, Mr Ashutosh Bhargava, Mr Vikram Dhawan and Ms Kinjal Desai||Benchmark Index||50% of S&P BSE 500, 20% of Crisil Short Term Bond Fund Index & 30% of Thomson Reuters – MCX iCOMDEX Composite|
|Issue Opens||August 07, 2020||Issue Closes:||August 21, 2020|
(Source: Scheme Information Document)
How will the scheme allocate its assets?
Under normal circumstances, the asset allocation will be as follows:
Table 2: NIMAF‘s Asset Allocation
|Instruments||Indicative Allocation (% of total assets)||Risk Profile|
|Equity & Equity related securities (including overseas securities /Overseas ETF)||50||80||Medium to High|
|Debt & Money Market Instruments||10||20||Low to Medium|
|Commodities*||10||30||Medium to High|
*Includes Gold ETF and Exchange Traded Commodity Derivatives (ETCDs) where participation will be limited to derivatives contracts in Metals, Energy and Indices as permitted by SEBI from time to time.
(Source: Scheme Information Document)
What will the Investment Strategy be?
To achieve the investment objective, the Scheme will invest in equity & equity related instruments, debt & money market instruments and Gold ETF and Exchange Traded Commodity Derivatives (ETCDs) as permitted by SEBI from time to time.
The Scheme seeks to provide diversification across Equity, Debt, and Commodity asset classes with an aim to provide superior risk adjusted returns. For investments in equity and equity related securities, the Scheme would identify companies for investment, based on the following criteria amongst others:
- Sound Management
- Good track record of the company
- Potential for future growth
- Industry economic scenario
For investments in Debt Securities, income may be generated through the receipt of coupon payments, the amortization of the discounts on debt instruments or the purchase and sale of securities in the underlying portfolio
The fund will have the flexibility to invest in a broad range of companies with an objective to maximize the returns, at the same time trying to minimize the risk by reasonable diversification.
Though every endeavour will be made to achieve the objective of the Scheme, the AMC / Sponsors / Trustee do not guarantee that the investment objective of the Scheme will be achieved. No guaranteed returns are being offered under the Scheme.
Who will manage Nippon India Multi Asset Fund?
The Nippon India Multi Asset Fund will be co-managed by Mr Amit Tripathi, Mr Manish Gunwani, Mr Ashutosh Bhargava, Mr Vikram Dhawan, and Ms Kinjal Desai. Each one will be looking into different asset class of the fund’s portfolio.
Mr Amit Tripathi will primarily manage the debt portion of the scheme; Mr Manish Gunwani will manage the equity portion of the scheme along with Mr Ashutosh Bhargava, Ms Kinjal Desai will manage the International Equity portion; and Mr Vikram Dhawan will manage gold component of the portfolio.
Mr Amit Tripathi is the CIO-Fixed Income at Nippon Life India Asset Management Limited. He has a BCom (Honours) and a Post graduate diploma in management to his credit. He has over 21 years of experience in capital markets investment research. Before joining the AMC in 2003, he was the Assistant Admin Officer – Investment Dept for 7 years in The New India Assurance Co. Limited. Prior to that, he worked with Sun Invest Associates Limited. as an Analyst Equity Market Operations for a year and at CFS Financial Services Pvt. Limited for Equity Research & Arbitrage Trading.
Some of the schemes Mr Tripathi currently manages at the fund house include Nippon India Yearly Interval Fund – Series 1, Nippon India Interval Fund – All Series and All Series of Nippon India Fixed Horizon Fund.
Mr Manish Gunwani is the CIO – Equity at Nippon Life India Asset Management Limited. He has a B.Tech Engineer degree and has Post graduate diploma in management to his credit. He has over 22 years of experience in Capital Markets and fund management. Prior to joining the AMC in 2017, he worked as an Equity Fund Manager at ICICI Prudential Asset Management Company Limited. Before that he has worked as a Senior Analyst with Lehman Brothers and Brics Securities, as a Analyst with Lucky Securities, SSKI Securities and Prime Securities. He had co-founded and headed Vicisoft Technologies.
Some of the schemes Mr Gunwani currently manages at the fund house include Nippon India Balanced Advantage Fund Nippon India Capital Builder fund – IV series D Nippon India Growth Fund.
Mr Ashutosh Bhargava is a Co-Fund Manager at Nippon Life India Asset Management Limited. He completed his Commerce Graduation and has a Masters degree to his credit. He has over 15 years of experience in Capital markets. Before joining the AMC in 2008, he worked as an Economist at Reliance Capital Ltd and JPMorgan India Services Private Ltd.
Some of the schemes Mr Bhargava currently manages at the fund house include Nippon India Quant Fund Nippon India Balanced Advantage Fund.
Mr Vikram Dhawan is a Fund Manager for Commodities at Nippon Life India Asset Management Limited. He is Bachelor in Engineering and has a PGDMM has over 25 years of experience.
Before joining the Asset Management Company Ltd. in 2017, he worked as a Commodity Risk Advisor, Risk Manager at Gold Matrix Pte, Singapore; Head Commodities, Reliance Capital Limited; Head Commodity Risk Management, Vedanta Group; COO, Zee Gold Refinery (Shirpur Gold Refinery); Country Manager, N.M. Rothschild & Sons; Associate Director, Bank of Nova Scotia; Head Commodity Hedging, Birla Copper (Hindalco); and Materials Officer at Synthetics & Chemicals Ltd.
Ms Kinjal Desai is a Dedicated Fund Manager for Overseas Investment at Nippon Life India Asset Management Limited. She has done her Masters in Economics and has 7 years of experience as a Associate Equity Investments at NAM India, Assisting Lead Analyst in Equity Research, idea generation and sector monitoring, assisting Fund Managers in stock selection, and monitoring of overseas investments.
Some of the schemes Ms Desai currently manages at the fund house include Nippon India Japan Equity Fund Nippon India US Equity Opportunities Fund Nippon India ETF Hang Seng BeES.
The outlook for Nippon India Multi Asset Fund
To achieve the stated objective of the scheme, Nippon India Multi Asset Fund will be actively managed by experienced fund managers as per the indicative investment strategy to structure the portfolio.
Diagram 2: Investment strategy and probable asset allocation explained
@as permitted by SEBI from time to time. The above exposure is subject to change within the limits of SID depending on fund managers views and the market conditions.
(Source: Nippon India Multi Asset Fund’s Presentation)
A multi asset fund has the advantage of capturing opportunities to generate returns. The asset allocation of the scheme will be such that it would capture potential gains across market phases through a combination of asset classes. No doubt since the assets are non-correlated with each other within the portfolio, the fund will mitigate the risk of loss due to any single asset class.
However, the fund will have exposure to international markets, so there is a geopolitical risk involved and gold as a commodity too has certain risks: 1) For arbitrage trades – Operational challenges; 2) For Calendar Spreads and Directional Trades – Systemic and Un-systemic Risks.
The novel coronavirus has muted corporates’ earnings and shows drop-in consumption preferences coupled with the continued slowdown in India’s economy. Besides, due to the strain of Indo-China relations, dealing with Chinese goods and services will weigh heavily on the markets and consumer consumption including the trade war tensions of US and other nations, following the upcoming US elections in November.
So, the construction of the portfolio would be a challenge for the fund managers to spot opportunities in the current environment along with the risk management measures they adopt. Therefore, although there may be good opportunities in the long run, the risk could be very high as well. PersonalFN is of the view that understanding the overall implications is important before investing.
This article first appeared on PersonalFN here