NFO Pick – (LIC MF Multi Asset Allocation Fund)

20 Jan 2025 , 04:47 AM

WHAT IS MULTI ASSET ALLOCATION FUND AND WHY?

A multi asset allocation fund (MAAF) combines various asset classes like equities, bonds, gold, silver, and REITs. The idea is to combine assets with low correlation and even negative correlation; so that the portfolio can outperform individual asset classes in risk-adjusted terms. Here are some features of multi asset allocation funds in India.

• They combine growth of equities with income generation of debt and the hedging power of gold and silver. It enables balancing of risk and reward on a continuous basis.
• Return leaders keep changing. In last 15 years, gold was the star in 7 years, equities in 6 years and debt in 2 years. You cannot predict the outperform, but you can diversify.
• Diversification effect works due to correlation. For instance, equities have a low correlation of 0.15 with debt and negative correlation of -0.08 with gold.
• If you look at 3 years rolling returns; MAAF portfolio gave 12.15%; Debt 7.97%, Equities 13.55%, and Gold 9.13%. MAAF is almost as good as the best in terms of returns.
• What about risk? MAAF portfolio had standard deviation of 4.54%. This compares well with Debt 1.84%, Equities 6.94%, and Gold 8.06%. It is better risk-adjusted returns.
• What was the probability of earning over 10% per year? For MAAF portfolio it was 70.0%; for Debt it was 11.9%, for Equities 73.2%, and for Gold 47.5%.
• Not only has the MAAF portfolio delivered better risk-adjusted returns during times of financial crisis and financial boom, but even drawdowns have been much lower.

From an investor perspective, the most important aspect is a diversified portfolio under a single window. Above all, the portfolio churn and any asset class shifts are entirely tax-neutral for the investor.

HOW MULTI ASSET ALLOCATION FUNDS PERFORMED IN INDIA?

LIC MF Multi Asset Allocation Fund NFO (Hybrid Fund) will invest in a mix of equities, debt, gold, silver, and REITS; with minimum 65% to equities to retain equity fund tag for tax purposes. There are 16 multi asset allocation funds in India with AUM of ₹98,541 Crore.

Scheme Name	Return (%) 1-Year	Return (%) Since Launch	Daily AUM (₹ in Crore)
Quant Multi Asset Fund	21.98	11.49	3,148.27
WhiteOak Multi Asset Allocation Fund	18.02	17.00	1,216.23
UTI Multi Asset Allocation Fund	17.81	12.84	4,983.32
Nippon India Multi Asset Allocation Fund	17.42	16.79	4,908.98
DSP Multi Asset Allocation Fund	16.69	19.01	2,488.49
ICICI Prudential Multi Asset Fund	16.66	21.05	51,924.83
Axis Multi Asset Allocation Fund	15.22	9.62	1,317.86
Kotak Multi Asset Allocation Fund	14.78	18.60	7,649.56
ABSL Multi Asset Allocation Fund	14.70	17.24	3,688.80
Baroda BNP Paribas Multi Asset Fund	13.42	16.69	1,144.31

Data Source: AMFI

The table provides performance of top 10 multi asset allocation funds on 1-year returns; since that is the only comparable metrics available.

• On a 1-year returns basis, small Funds generated maximum returns of 21.98% and minimum returns of -0.73%. The average returns over a 1-year period was 13.37%.
• CAGR returns since launch showed; maximum returns of 21.05% and minimum returns of 4.85%. The average returns since launch was 13.87%; impressive amidst the volatility.

The return variance is quite wide, but that is more on account of the allocation discretion that fund managers have in this case.

GLANCE AT THE LIC MF MULTI ASSET ALLOCATION FUND NFO

Here are key details of the LIC MF Multi Asset Allocation Fund NFO.

• The NFO opened on January 24, 2025 and closes on February 09, 2025. Regular sale and repurchase of units at NAV linked prices will start from February 18, 2025.
• On the risk-o-meter, LIC MF Multi Asset Allocation Fund is classified as “Very High Risk” due to its predominant equity exposure and discretionary allocation risk.
• Investment objective of the fund is to generate long term appreciation, by investing in a diversified portfolio of equity, debt, money market, gold, silver, and REITs.
• There is no entry load. There is no exit load on 12% of invested funds. For balance 88%, 1% exit load will apply up to 3 months from allocation date. No exit load after 3 months.
• The LIC MF Multi Asset Allocation Fund will offer regular and direct plans. In terms of the options, the fund offers the growth and the IDCW plan to investors.
• Fund managers for LIC MF Multi Asset Allocation Fund are; Nikhil Rungta (Equity portion), Pratik Shroff (Debt portion), Sumit Bhatnagar (Commodity portion)
• Minimum lumpsum investment in the NFO will be ₹5,000 and multiples of ₹1. Minimum SIP amount will be ₹100 (Daily SIP), ₹200 (Monthly SIP), and ₹1,000 (Quarterly SIP).
• With over 65% in equities, LIC MF MAA will be classified as equity fund for tax purposes. STCG (less than 12 months) will be taxed at 20% plus cess; while LTCG (over 12 months) will be taxed at 12.5%, with ₹1.25 lakhs as base exemption per fiscal year.

The LIC MF Multi Asset Allocation Fund offers a good alternative to leverage the power of multiple investment classes through a single portfolio and minimal churn cost.