The Indian markets have witnessed a strong momentum over the past few months and achieved an important milestone on 21st January 2021 with the S&P BSE Sensex crossing 50,000 for the first time. Also, the market index has nearly doubled from its lows in March last year.
In addition, the news around the upcoming Union Budget has added strength to the markets and the broad direction of the upcoming budget could potentially lay the foundation for a long-term economic growth path. Apart from the policy thrust, it would be vital to see how the government intends to manage its finances.
However, if the Budget disappoints, there could be a volatility seen in the market and investors must be prepared for that.
To reduce the overall portfolio volatility and increase investment results you must adhere to a prudent asset allocation framework. The general approach of an asset allocation strategy is to determine which asset classes to invest in based on your risk tolerance and investment objectives.
Asset allocation sets forth a plan and can lead to better overall results, but the implementation needs to be flexible enough to adapt to long-term trends in the market. Individual asset classes can be volatile, but in a well-constructed portfolio, there will be investments diversified into various asset classes that can offset the volatility, both on uptrend and downtrend thus, producing a more stable return pattern.
Most of the investors determine their own asset allocation and allocate investments to specialised assets. But, your decision may falter depending on two points, the choice of asset and the allocation towards it. If you don’t have the inclination to make those decisions, then you may consider an asset allocator fund or multi-asset fund.
Looking at the importance of asset allocation in a fund for long-term capital appreciation and lower volatility. Nippon India Mutual fund has launched Nippon India Asset Allocator Fund of Fund to provide retail investors with an opportunity to invest in a scheme that offers prudent asset allocation by investing in different asset classes and benefit from the diversification made through an in-house proprietary model to determine the optimum allocation.
This is an open-ended fund of fund scheme that will seek long-term capital growth by investing in units of equity-oriented schemes, debt oriented schemes and gold ETF of Nippon India Mutual Fund. At times, it may also invest in Money Market Instruments and units of Liquid schemes.
However, there can be no assurance or guarantee that the investment objective of the Scheme will be achieved.
As per the SEBI guidelines, a Fund of funds scheme shall not invest its assets other than in schemes of mutual funds, except to the extent of funds required for meeting the liquidity requirements for the purpose of repurchases or redemptions.
Table1: Details of Nippon India Asset Allocator Fund of Fund
|Type||An open ended fund of funds scheme investing in equity oriented schemes, debt oriented schemes and gold ETF of Nippon India Mutual Fund||Category||Fund of Fund|
|Investment Objective||To seek long-term capital growth by investing in units of equity-oriented schemes, debt oriented schemes and gold ETF of Nippon India Mutual Fund. 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 with no upper limitAdditional Purchase Rs 1000/- and in multiples of Re 1/- thereafter||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||
|Fund Manager||– Prashant Pimple
– Ashutosh Bhargava
|Benchmark Index||CRISIL Hybrid 50+50 Moderate Index|
|Issue Opens||January 18, 2021||Issue Closes:||February 01, 2021|
(Source: Scheme Information Document)
Investment Strategy – Nippon India Asset Allocator Fund of Fund?
To achieve the investment objective Nippon India Asset Allocator FoF will invest in units of equity-oriented schemes, debt oriented schemes and gold ETF of Nippon India Mutual Fund. The scheme may also invest in Money Market Instruments and units of Liquid schemes.
The Nippon India Asset Allocator FoF will follow an in-house proprietary model to determine the optimum allocation across Large Cap, Mid Cap, Small Cap, Short Term Debt, Long Term Debt and Gold ETF. The rebalancing of the portfolio will be done on a monthly basis. The model consists of following broad parameters:
- Trend Following (Moving Averages, etc.)
- Yield Curve
- Macro Fundamentals
- Relative Asset Class Momentum
As markets are volatile, this dynamic framework uses a robust set of Macro, Micro & Market Indicators with an aim to deliver superior risk adjusted returns. This ensures that you are always invested in the asset classes where the growth is most likely to be.
Nippon India Asset Allocator FoF will framework hold a diversified multi-asset portfolio by investing up to 100% in equity-oriented schemes and similar for debt-oriented schemes, and up to 25% in gold ETFs. Apart from this, the scheme will invest in money market instruments and liquid schemes with an exposure range of 0 to 5%.
Under normal circumstance, the fund’s asset allocation pattern will be as under:
Table 2: Asset Allocation of Nippon India Asset Allocator Fund of Fund
|Instruments||Indicative Allocations(% of Net Assets)||Risk Profile|
|Equity oriented schemes||0||100||High|
|Debt oriented schemes||0||100||Low to Medium|
|Gold ETF||0||25||Medium to High|
|Money Market Instruments & Units of Liquid Schemes||0||5||Low to Medium|
(Source: Scheme Information Document)
Who will manage Nippon India Asset Allocator Fund of Fund?
Nippon Asset Allocator FoF will be managed by Mr Prashant Pimple and Co-managed by Mr Ashutosh Bhargava.
Mr Prashant Pimple is Senior Fund Manager – Fixed Income at Nippon India Mutual Fund. He has successfully completed over 19 years of experience in capital markets. Mr Pimple is a MMS, B.Com and CTM.
Prior to this Mr pimple was Portfolio manager at Fidelity Mutual Fund. He has also worked with ICICI Bank and Bank of Bahrain and Kuwait.
Currently the other schemes managed by him are; Nippon India Dynamic Bond Fund, Nippon India Short Term Fund, Nippon India ETF Long Term Gilt, Nippon India Nivesh Lakshya Fund, Nippon India Banking & PSU Debt Fund, Nippon India Balanced Advantage Fund, Nippon India Retirement Fund – Income Generation Scheme, Nippon India Retirement Fund – Wealth Creation Scheme, Nippon India Gilt Securities Fund, Nippon India ETF Nifty CPSE Bond Plus SDL-2024 Maturity.
Mr Ashutosh Bhargava is a Fund Manager and Deputy Investment Strategist at Nippon India Mutual Fund. He carries over 15 years of experience in capital markets. Mr. Bhargava is a MBA (Finance) and B.com. Prior to this, he has worked with Reliance Capital Ltd. and JPMorgan India Services Private Ltd as Economist.
Fund Outlook – Nippon India Asset Allocator Fund of Fund
With large number of mutual fund schemes and various asset classes to choose from, designing the right mix of asset allocation could be a daunting task for some investors. This fund provides a strategy for tactical asset allocation across classes to generate capital appreciation, while at the same time mitigating the risk.
However, do note that as the investors are incurring expenditure at both the Fund of Funds level and the schemes into which the Fund of Funds invests, the returns that they may obtain may be materially impacted or may at times be lower than the returns that investors directly investing in such schemes obtain.
In addition, the Fund of Funds scheme may shift the weightage of investments between schemes into which it invests; the expenses charged being dependent on the structure of the underlying schemes (being different) might lead to a non- uniform charging of expenses over a period of time.
Since the fund has the flexibility to invest up to 100% of its assets in equities, the portfolio may be prone to high volatility, and this makes it unsuitable for risk-averse investors.
This fund is suitable for investors with higher risk-appetite looking for long-term capital growth through tactical allocation across asset classes viz. Equity, debt and gold. Investors should consider their investment preference, risk appetite, and suitability before investing in Nippon India Asset Allocator FoF.
This article first appeared on PersonalFN here