Shriram AMC's new multi-asset fund: Should you invest? All you need to know

The minimum allocation of 65% to equities allows investors in this fund to benefit from Long Term Capital Gains tax of 10%.

 Shriram Asset Management Company, part of the Shriram Group, has launched Shriram Multi Asset Allocation Fund, which aims to offer long-term inflation-adjusted wealth creation through exposure to several assets such as equity, debt, and gold/silver ETFs. 

The New Fund Offer (NFO) will close on September 1, 2023. 

What are multi-asset allocation funds?

Multi-asset allocation funds are balanced mutual funds that invest at least 10% of their portfolio in three or more asset classes. The asset allocation of these funds generally includes securities across equity and debt markets, gold, real estate, and so on. This gives investors the benefit of exposure to a diversified portfolio.     

MAFs have outpaced other hybrid categories with YoY growth of over 35% in net AUMs in the last financial year, while the overall AUMs of Hybrid schemes have been flat. 

Who should invest in mult-asset allocation funds? 

Investing in multi-asset allocation mutual funds is suitable for those investors who are not willing to assume higher levels of risk and are looking to earn stable and consistent returns on their investments. 

Here is everything you need to know: 

1. It is an open-ended scheme investing in Equity, Debt & Money Market Securities and Gold/Silver ETFs and related instruments.

2. Asset allocation  details:
Between 65% to 80% of the fund’s corpus will be invested in equity, which includes 30 to 40 stocks from Shriram AMC’s proprietary Enhanced Quantamental Investment (EQI) model.  The fund would also allocate 10% to 25% of funds in high quality (AAA) Short to Medium term debt, preferably in government and government-backed securities to avoid any credit risk; 10% to 25% in gold/silver ETFs, with the option up to 10% in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

Why Gold & Debt ? They are supportive in bull markets and offer a hedge against bear markets

Gold has historically exhibited an inverse correlation with equities during bear markets and times of crisis. As a result, inclusion of gold in the portfolio helps in hedging risk, limiting the drawdown i.e. extent of fall in value from the peak, and accelerating the recovery, during times of market turbulence.

3. The model relies on statistical data to make the right investment decisions for better fund performance while integrating quant as well as fundamental inputs for portfolio construction. Benchmark: Nifty 50 TRI (70%) + NIFTY Short Duration Debt Index (20%) + Domestic prices of Gold (8%) + Domestic prices of Silver (2%)

4. Taxation: 

The  minimum allocation of 65 per cent to equities allows investors in this fund to benefit from Long Term Capital Gains tax. 

The fund offers the investor the benefit of Long Term Capital Gains tax (LTCG) @10% (plus surcharge and cess) if they cross Rs 1 lakh of capital gains in a fiscal year. If an investor buys/sells equity, debt, gold separately to rebalance their asset allocation, they might face capital gains tax with each transaction. When the fund manager transacts within the scheme, there is no capital gains tax on the scheme. 

This fund will be categorized as an equity fund and taxed accordingly. If you gain Rs 2 lakh on a multi-asset allocation fund categorized as an equity fund, Rs 1 lakh will be exempted from tax. The remaining Rs 1 lakh will be taxed at 10%, i.e., Rs 10,000. 

5. How to invest

Investors can regularly invest in this fund through Systematic Investment Plans (SIP), top-ups, or Systematic Transfer Plans (STP) from liquid or overnight funds to meet their financial and family goals.

The minimum investment amount for lumpsum is Rs 5,000 while for SIPs it is Rs 1,000 per month or Rs 3,000 per quarter. There is no lock-in period involved.
 

"Analysis of the last five years indicates that the category of Multi Asset Allocation Funds has shown lesser volatility with equity-like returns; hence this is a good option for goal planning. The exposure to gold also gives us a hedge against market volatility especially during crisis periods and hence reduces the drawdown (fall from the peak) and gives a quicker recovery back to the earlier level," said Kartik L Jain, MD & CEO, Shriram Asset Management Company .

Most popular  multi-asset funds in the market

In India, the  multi asset allocation hybrid fund category is dominated by ICICI Prudential Multi Asset Fund,  HDFC Multi Asset, Nippon India Multi Asset, SBI Multi Asset Allocation,  Tata Multi Asset Opportunities, and Axis Multi Asset Allocation. 

Experts Business Standard spoke to have picked the following funds as the best multi-allocation funds to pick from:

Quant Multi Asset Funds

SBI Multi Asset Allocation fund 

ICICI Prudential Multi Asset Fund

HDFC Multi Asset Fund

Axis Multi Asset Allocation fund 

What percentage of portfolio should one allocate to multi asset allocation funds? 

The appropriate allocation can vary from individual to individual. The multi-asset allocation Mutual Funds are deemed suitable for investors who have a low-risk appetite but want to enjoy steady returns on their investments.

Allocating around 10-30% of a portfolio to multi-asset allocation funds can provide diversification benefits and help manage risk, depending on an individual's financial goals and risk tolerance

Is it worth investing? 
Brokerage Samco belives multi asset allocation funds might work for investors who do not have the time or knowledge to create a diversified portfolio.But for investors who do, it is much better to invest in individual asset classes to generate substantially higher returns.

Is multi-asset allocation fund better than aggresive hybrid fund?

Due to less equity exposure, multi-asset funds are often less volatile than aggressive hybrid funds. 

"However, investors should not overemphasize reducing volatility because it is also an opportunity to beat retail inflation. The choice between an equity-heavy portfolio and a slightly more diverse one concerns an investor's overarching financial goal, investment strategy, and asset mix. In the accumulation phase, equity scores above all asset classes long-term. Thus, an aggressive hybrid fund would work better. As an investor's portfolio allocation gradually moves towards debt, they can switch to multi-asset funds," said Ajinkya Kulkarni, Co-Founder and CEO, Wint Wealth