Edelweiss Mutual Fund recently launched the Edelweiss Multi Asset Allocation Fund, which will allow investors to gain exposure to all asset classes including equities, debt, commodities, and real estate investments.
The asset management company (AMC) has proposed the following asset allocation in its Scheme Information Document (SID).
Instruments | Indicative allocations (% of total assets) | Risk Profile |
Equity & Equity related instruments | 10% to 80% | High |
Debts and money market instrument | 10% to 80% | Low to Moderate |
Commodity ETFs, Exchange Traded Commodity Derivatives (ETCDs), and any other mode of investment in commodities as permitted by SEBI from time to time. | 10% to 30% | Moderate to High |
Units issued by REITs and InvITs | 0% to 10% | Moderate to High |
This is not the first multi-asset allocation fund that has been launched. Before this, many mutual fund houses have launched similar funds, thus, allowing investors to benefit from investing in various asset classes, thus, enabling enough scope for stability and shielding the fund from sudden and continued market shocks.
An assessment of the asset allocation suggested in the SID highlights a thorough allocation to both equities and debt. Debt funds have been rendered unattractive and replaced with high-income fixed deposits and government schemes post the waiver of capital gains tax and indexation benefits in the new Finance Bill proposed this year.
However, this rule is applicable only to mutual funds with less than 35 per cent allocation to equities. This also means that investors in these funds will have to shell out the same rate as short-term capital gains tax (as applicable to funds held for less than three years).
However, investors holding funds with at least 65 per cent in equities will have to pay 15 per cent tax sans indexation (if held for less than a year), and 10 per cent without indexation, if held for more than a year. Considering how the fund will invest more than 65 per cent in equities, it offers indexation benefit if held for more than three years.
As per the SID, money market instruments include commercial papers, commercial bills, treasury bills, Tri-party repo, Government securities having an unexpired maturity of up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time. The Macaulay duration would not be less than three years since this is the minimum amount needed to recover the money invested in bonds and debt instruments, thus, aligning with the need to stay invested for more than three years.
Since allocation to equities is not expected to go down below 35 per cent, investors can safely assume this fund to be a kind of hybrid fund with a greater allocation to equities. There is the debt component too, which is high enough for risk-averse investors to relax and stay invested. A closer look at this fund underlines how this fund was created to attract debt fund investors under the guise of spreading the investment money under different asset classes.
Basavaraj Tonagatti, a certified financial planner and SEBI-registered investment advisor said, “The idea may be to just attract debt fund investors eager to save tax with indexation benefits. However, if you are so much concerned about taxation and your goals are short-term in nature, then use an arbitrage fund. Otherwise, use fixed deposits, ultra-short duration funds, or money market funds.”
Should you invest in this fund?
The answer to this question depends on what kind of investor you are. Rajani Tandale, Product Head – Mutual Fund, 1finance.co.in said, “Edelweiss Multi Asset Allocation Fund’s product positioning differs slightly from existing funds in its category. It invests in equity, debt, gold, and silver. The fund’s main objective is to generate stable and low-volatility returns, similar to debt fund investments, by utilizing fixed-income, equity arbitrage, and gold and silver arbitrage strategies. By investing in this fund, investors can seize the opportunity to achieve returns comparable to fixed-income investments.”
“Additionally, the fund offers the benefit of taxation at a rate of 20 per cent with indexation benefit. The fund also aims to keep the expense ratio at the lower end. This feature can be advantageous for investors seeking a conservative approach to their investments,” added Tandale.
However, irrespective of the thoughtful asset allocation and indexation benefits that the fund may offer, one cannot help but notice that it is a new fund offer (NFO). This means that there is no way for you to gauge if this fund will perform as promised. Instead of putting their money in an NFO, interested investors may consider putting their money in other multi-asset funds with similar asset allocations that have performed over the period.
Investors may look at the funds’ past five-year returns, rolling returns over a period, funds’ performance during intermittent market downturns, and the extent of volatility to decide if the fund is worth your time and investment.
