The economic activities in India are holding up due to the second wave of COVID-19 pandemic and this affects the market conditions causing impact on investor’s investment portfolio. Investors should build a robust portfolio with strong asset allocation strategy to deal with uncertain market conditions.
The Asset allocation process helps investors diversify their risk by distributing the investible surplus across various asset classes according to risk appetite, investment horizon and financial goals. You see, each asset class performs differently across various market cycles, which makes the dependency on a single asset class a risky proposition to generate sustainable returns. With systematic asset allocation you may generate better risk-adjusted returns towards your investment portfolio.
It could be difficult to determine your own asset allocation and allocate your investments across asset classes. If you don’t hold the inclination to make such decisions, you may falter at the choice of asset class and the allocation towards it. Thus, if you are unable to implement asset allocation to your investment portfolio, you may consider investing in suitable asset allocation funds.
Such asset allocation funds have a systematic and process driven asset allocation approach to invest across asset classes such as equity, debt and gold. As mandated by SEBI these funds have to invest at least 10% of the fund’s portfolio in each asset class; equity, debt and gold.
Looking at the current market scenario and in investors’ interest towards asset allocation approach, HDFC Mutual Fund has launched HDFC Asset Allocator Fund of Funds. It is an open-ended Fund of Funds scheme investing in equity oriented, debt oriented and gold ETF schemes. This Fund will seek capital appreciation by investing in units of various schemes across asset classes; equity, debt and gold.
Table 1: Details of HDFC Asset Allocator Fund of Funds
|An open-ended Fund of Funds scheme investing in equity oriented, debt oriented and gold ETF schemes.
|Fund of Funds
|To seek capital appreciation by managing the asset allocation between equity oriented, debt oriented and gold ETF schemes. There is no assurance that the investment objective of the Scheme will be realized.
|Rs 5000/- and in multiples of Re 1 thereafter. Additional purchase Rs 1000/- and in multiples of Re 1 thereafter.
|Rs 10/- per unit
|In respect of each purchase / switch-in of Units, up to 15% of the units may be redeemed without any exit load from the date of allotment.
Any redemption in excess of the above limit shall be subject to the following exit load:
|90% NIFTY 50 Hybrid Composite Debt 65:35 Index (TRI) and 10% Domestic Prices of Gold arrived at based on London Bullion Market Association's (LBMA) AM fixing price.
|April 16, 2021
|April 30, 2021
(Source: Scheme Information Document)
What will be the Investment Strategy for HDFC Asset Allocator Fund of Funds?
HDFC Asset Allocator Fund of Funds will manage asset allocation by passively investing in equity oriented, debt oriented and gold ETF schemes to seek capital appreciation. The Fund Manager Mr Amit Ganatra said, “Our in-house model first studies the equity market and decides an appropriate equity allocation. Then, comes the allocation to gold, depending on the real interest rates (interest rates less inflation). Whatever remains will then get invested in fixed income.”
This scheme will invest in any of the following category of the schemes:
1. Units of domestic Equity Oriented Schemes
2. Units of domestic Debt Oriented Schemes
3. Units of domestic Gold ETF Schemes
The Scheme will allocate its assets between equity oriented / debt oriented /gold ETF schemes based on prevailing market conditions subject to permissible limits.
The Fund Manager will increase exposure to Equity oriented schemes when market valuations are attractive and will prune down the equity exposure by increasing exposure in Debt Oriented or Gold ETF Schemes, when equity markets get expensive or experience volatility or under any other conditions as found suitable by the Fund Manager.
About the benchmark
The NIFTY 50 Hybrid Composite Debt 65:35 Index is designed to measure the performance of hybrid portfolio having 65% exposure to NIFTY 50 and 35% exposure to NIFTY Composite Debt Index. The index is derived from the total return versions of the NIFTY 50 index and the NIFTY Composite Debt Index.
The Domestic Prices of Gold arrived at based on London Bullion Market Association’s (LBMA) AM fixing price. The London bullion market is a wholesale over-the-counter market for the trading of gold and silver. Trading is conducted amongst members of the London Bullion Market Association (LBMA).
This scheme will endeavour to invest in units of domestic mutual funds schemes; like 40-80% in equity, 10-50% in debt and 10-30% in gold and apart from this it will invest up to 5% in Debt securities and money market instruments in order to meet the liquidity requirements.
Under normal circumstances, asset allocation will be as under:
Table 2: Asset Allocation for HDFC Asset Allocation Fund of Funds
|Indicative Allocation (% of net assets)
|Units of domestic Mutual Fund Schemes as under
|Equity Oriented Schemes*
|Low to High
|Debt Oriented Schemes**
|Low to Medium
|Gold ETF Schemes***
|Medium to High
|Debt securities and money market instruments
|Low to Medium
*Equity Oriented Schemes: HDFC Flexi Cap Fund and/or HDFC Top 100 Fund and/or HDFC Mid-Cap Opportunities Fund and/ or HDFC Small Cap Fund and/or HDFC Growth Opportunities Fund and/or HDFC Capital Builder Value Fund and/or HDFC Focused 30 Fund and/or HDFC Dividend Yield Fund and/or HDFC Infrastructure Fund and/or HDFC Arbitrage Fund and/or HDFC Balanced Advantage Fund and/or HDFC Equity Savings Fund and/or HDFC Hybrid Equity Fund and/or HDFC Multi – Asset Fund; and or Equity ETFs / Index Funds and/or other schemes of HDFC Mutual Fund or other Domestic Mutual Funds having similar objectives, strategy, asset allocation and other attributes.
**Debt Oriented Schemes: HDFC Liquid Fund, HDFC Overnight Fund, HDFC Ultra Short Term Fund, HDFC Low Duration Fund, HDFC Money Market Fund, HDFC Short Term Debt Fund, HDFC Banking and PSU Debt Fund, HDFC Corporate Bond Fund, HDFC Credit Risk Debt Fund, HDFC Dynamic Debt Fund, HDFC Floating Rate Debt Fund, HDFC Gilt Fund, HDFC Income Fund, HDFC Medium Term Debt Fund, HDFC Hybrid Debt Fund and/or other schemes of HDFC Mutual Fund or other Domestic Mutual Funds having similar objectives, strategy, asset allocation and other attributes.
***Gold ETF Schemes: HDFC Gold ETF and/or other schemes of HDFC Mutual Fund or other Domestic Mutual Funds having similar objectives, strategy, asset allocation and other attributes.
(Source: Scheme Information Document)
Who will manage HDFC Asset Allocator Fund of Funds?
The dedicated fund managers for this scheme will be Mr Amit Ganatra for Equity assets, Mr Anil Bamboli for Debt assets and Mr Krishan Kumar Daga for Gold ETF schemes.
Mr Amit Ganatra is Senior Fund Manager at HDFC Asset Management Company Ltd. and has over 17 years of experience in equity research including around 9.5 years in fund management. Prior to this he was associated with Invesco India Asset Management as Fund Manager, DBS Chola Asset Management as Analyst, Fidelity Investments as Sector Specialist and CMIE (Centre for Monitoring Indian Economy) as Analyst.
Mr Ganatra’s qualification includes M.com, CA and CFA. Currently other schemes managed by him are; HDFC Capital Builder Fund, HDFC Equity Opportunities Fund – Series 2, HDFC Dynamic PE Ratio Fund of Funds, HDFC Multi-Asset Fund (Equity Assets) and HDFC TaxSaver.
Mr Anil Bamboli is Senior Fund Manager at HDFC Asset Management Company Ltd. and has over 25 years of experience in Fund Management and Research, Fixed Income dealing. Prior to this he was associated with SBI Funds Management Pvt. Ltd. as Asst. Vice President.
Mr Anil’s qualification is B. Com, Grad CWA, MMS (Finance) and CFA (CFA Institute). Currently other schemes under his management are; HDFC Banking and PSU Debt Fund, HDFC Dynamic Debt Fund, HDFC Dynamic PE Ratio Fund of Funds (debt Assets), HDFC Equity Savings Fund (Debt Assets), HDFC Fixed Maturity Plan – Series 27, 40, 43, HDFC Gilt Fund, HDFC Money Market Fund, HDFC Multi-Asset Fund (Debt Assets), HDFC Overnight Fund, HDFC Short Term Debt Fund and HDFC Ultra Short Term Fund.
Mr Krishan Kumar Daga is Senior Fund Manager at HDFC Asset Management Company Ltd. and has over 24 years experience in Fund Management and Research. Prior to this, he was associated with Reliance Capital Asset Management Company Limited as Fund Manager / Head – ETF, Reliance Capital Ltd as Vice President and Deutsche Equities as Vice President.
Mr Daga’s qualification is B.com and he currently manages other schemes such as; HDFC Arbitrage Fund, HDFC Banking ETF, HDFC Equity Savings Fund (Arbitrage Assets), HDFC Gold ETF, HDFC Gold Fund (FOF), HDFC Index Fund – Nifty Plan, HDFC Index Fund – SENSEX Plan, HDFC Multi-Asset Fund (Gold related instruments/Arbitrage Assets), HDFC NIFTY 50 ETF and HDFC Sensex ETF.
Fund Outlook – HDFC Asset Allocator Fund of Funds
This scheme aims to invest in three different asset classes with systematic and process driven asset allocation to seek capital appreciation in long-term.
This scheme will be passively investing in units of domestic mutual funds across the asset classes and it may consider the in-house schemes first and later select schemes of other fund houses depending on the market conditions and in investors’ interest to generate potential returns. The low correlation among different assets can enable the fund to protect the downside risk during uncertain economic conditions and volatile markets and generate better risk-adjusted returns.
However, the performance of the scheme will depend on the performance of the underlying equity, debt, gold schemes as well as the respective allocation in each of these schemes. It will also depend on the fund manager’s ability to timely increase/decrease allocation between the assets.
This scheme is suitable for investors having a moderately high-risk tolerance and an investment horizon of at least 3-5 years seeking to invest in funds that perform asset allocation through systematic approach.
This article first appeared on PersonalFN here