It is quite intriguing that whenever mutual fund schemes perform well, fund houses attribute the success to their investing prowess but whenever something goes wrong, they point at unforeseen challenges. This is bizarre and improper because asset management companies and fund managers are also supposed to deal with challenges in play and limit the downside risk. And that\u2019s where the investment processes & systems with risk management measures in place play a pivotal role. <\/p>\n\n\n\n
Big fund houses (with large marketing budgets) engage in brand building and attract investors. But the question to ask is: Are all fund houses truly prudent \u2018asset managers\u2019 or some of them mere \u2018asset gatherers\u2019? <\/em><\/p>\n\n\n\n Avoid being under the impression that big fund houses will not fail. The fiasco at Franklin Templeton Mutual Fund<\/a>, the IL&FS episode<\/a>, DHFL debacle<\/a>, the crisis at Yes Bank<\/a>, the bank ruptcies of many of R-ADAG companies, teach us a lesson and have debunked the \u201cToo Big to Fail”<\/em>myth. It\u2019s time for financial advisors plus investors learn from the mistakes and not repeat them. <\/p>\n\n\n\n Speaking of smaller fund houses, the year always treated with suspicion \u2026and for this reason, their AUM is smaller in size. <\/p>\n\n\n\n Imagine if a smaller fund house had closed any of its mutual fund schemes abruptly; different sections of media, financial advisors, and investors would have barraged them with variety of pointed questions, doubted their seriousness in doing business and investment prudence.<\/p>\n\n\n\n The agony of investors has not ended with debt mutual funds\nfiasco\u2026<\/strong><\/p>\n\n\n\n As you know, some fund houses pushed Balanced hybrid funds (erstwhile known as Balanced Funds) soon after investors ditched bank fixed deposits in search of higher returns post-demonetisation.<\/p>\n\n\n\n Similarly, the idea of Multi-Asset Funds, which\ninvest across the three key asset classes: equity, debt and gold, was put\nacross. <\/p>\n\n\n\n Monthly dividends; moderate risk profile; diversification; and better tax treatment made it a selling point and help garner significant AUM in certain schemes. <\/p>\n\n\n\n But unfortunately, many of the schemes have not been\nable to live up to the expectations of investors \u2013 in fact, have failed to\nmaintain \u2018balance\u2019 and astutely shift between asset classes, and consequently\ngiven investors a rude shock — exposed them to higher downside risk,\nparticularly amidst the novel Coronavirus or COVID-19 outbreak. <\/p>\n\n\n\n Table: Multi-asset funds \u2013 some have lost balance\nof late and the return has slipped sharply<\/em><\/strong><\/p>\n\n\n\n Equity allocation as per the last disclosed portfolios The table above suggests that Balanced Hybrid Funds and a few Multi-Asset Funds are mainly skewing their portfolio to equities for the better tax treatment, and to clock better returns. However, in the bargain,they have not been able to balance out the risks and have sharply eroded investors\u2019 wealth in the last few months. <\/p>\n\n\n\n Even after the name change from \u2018Balanced Funds\u2019 to \u2018Balanced Hybrid funds\u2019, this category highly camouflages risks due to irrational behavior of asset management companies \u2026and you discover it only when you dig deeper in their portfolios.<\/p>\n\n\n\n Some of them have taken high exposure to mid-and-small cap companies, plus also lost money on the debt portfolio side chasing high yields; by holding lower-rated papers issued by private entities. <\/p>\n\n\n\n For the investors of Multi-Asset Funds, superior return should not be the focal point of consideration, so as long the returns outperform bank FD rates over the medium to long term. The top most priority should be given to better risk management. A favorable status with equity-orientation should be secondary\u2014after all the investor must first make gains with the downside risk being managed well.<\/p>\n\n\n\n The objective of holding a Multi-Asset Fund is not to put all your eggs in one basket, on the contrary, diversify across asset classes and lower the risk (because not all assets move in the same direction always). When a Balanced Hybrid Fund and a Multi-Asset Fund invests over 2\/3rd<\/sup> of its AUM in equity — which also consists of some mid and small caps — how can it safeguard investors and be a true balance under intense bear market conditions?<\/p>\n\n\n\n A true Multi-Asset\nFund is the need of the hour<\/strong><\/p>\n\n\n\n COVID-19 has amplified the investment risk and financial crisis is brewing. The International Monetary Fund (IMF) has observed that this (COVID-19) crisis is like no other and, even though policy makers are providing support, there is substantial uncertainty about its impact on people\u2019s lives and livelihood. We could be looking at the worst global recession — worse than the Global Financial Crisis of 2008 and the Great Depression of the 1930s.<\/p>\n\n\n\n So far there does not appear to be an end\nin sight from the Coronavirus pandemic. And in such times, investors need a\nmutual fund scheme that holds an effective strategy to ride through a crisis by\ninvesting across the key asset classes: equity, debt, and gold. <\/p>\n\n\n\n\n Scheme\n Name <\/strong>\n <\/td> \n1-Year\n return<\/strong>\n <\/td> \n Equity\n allocation<\/strong>\n <\/td><\/tr> \n Quantum Multi Asset Fund of Funds <\/a>\n <\/td> \n 2.9%\n <\/td> \n 45.8%\n <\/td><\/tr> \n L&T Hybrid Equity Fund<\/a>\n <\/td> \n -10.0%\n <\/td> \n 75.6%\n <\/td><\/tr> \n ICICI Prudential Multi-Asset Fund<\/a>\n <\/td> \n -11.2%\n <\/td> \n 68.6%\n <\/td><\/tr> \n ICICI Pru Equity & Debt Fund<\/a>\n <\/td> \n -13.3%\n <\/td> \n 66.2%\n <\/td><\/tr> \n HDFC Hybrid Equity Fund <\/a>\n <\/td> \n -14.2%\n <\/td> \n 68.8%\n <\/td><\/tr> \n Aditya Birla Sun Life Equity Hybrid ’95 Fund<\/a>\n <\/td> \n -15.6%\n <\/td> \n 74.9%\n <\/td><\/tr> \n Franklin India Dynamic Asset Allocation Fund\n of Funds<\/a>\n <\/td> \n -24.7%\n <\/td> \n 88.6%\n <\/td><\/tr> \n S&P BSE SENSEX – TRI<\/em><\/em>\n <\/td> \n -15.2%\n <\/td> \n –\n <\/td><\/tr><\/tbody><\/table><\/figure><\/center>\n\n\n\n
Data as on May 15, 2020
Source: Respective Fact sheets; PersonalFN Research <\/p>\n\n\n\n