Motilal Oswal MF launches multi asset passive fund of fund NFOs; should you invest?

They will provide allocations across Equity, International Equity, Fixed Income and Commodity, offering investors an opportunity to take exposure in low cost and diversified assets

Staff Writer   /   February 18, 2021

Motilal Oswal Asset Management Company (AMC) has announced two New Fund Offers (NFO) — Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive and Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative.

Instead of managing multiple portfolios of different asset classes, the funds offer management of one portfolio with four asset classes showing a simplistic approach to investing. Here are more details.

About the NFOs

The new schemes are the country’s first 100% passive multi asset FoFs. They will provide allocations across Equity, International Equity, Fixed Income and Commodity, offering investors an opportunity to take exposure in low cost and diversified assets as per risk appetite or investment goal.

Investors looking for a moderate portfolio could invest 50:50 in both funds. Both funds play on the advantage of investing into historically low correlated asset classes.

The NFOs start from Feb. 19 and close on Mar. 5. The allotment date is Mar 12.

Why asset allocation

Factors such as, market timing & security selection are considered to have a relatively small impact on long term investment results.

Generally a significant percentage of volatility of investment performance is driven by asset allocation decisions.

What is unique

What also sets these funds apart from most multi-asset and hybrid schemes is that they follow strategic rebalancing, eliminating market timing risk.

In these funds, there is also no fund manager risk or credit risk involved.

The equity portion (Nifty 500) also removes size and sector bias out of the portfolio since it captures 95%+ of the entire equity market.  

Key attributes of the funds are as follows:

1.       Diversified – Combines four low correlated asset classes

2.       Options per Risk Appetite – Portfolios according to the risk appetite of investors – Aggressive FoF and Conservative FoF

3.       Risk Reduction – Significant reduction of risk in terms of historical annualized volatility and drawdowns

4.       Inbuilt Rebalancing – FoF has rule based portfolio rebalancing in place, which helps asset weights stay in line with the target asset allocation

5.       Tax Efficient – Unlike individual investor, the Mutual Funds don’t incur income tax liability during portfolio rebalancing

6.       Low Cost – All underlying funds are passive funds

What about taxes

From the context of tax implications, unlike equity taxation, given the current regulations, both FoFs will be taxed as debt instruments. A long-term investor who holds this fund could claim indexation benefits which significantly bring down the overall tax implication.

Fund-house speak

Explaining the reasoning and benefit of investment in these funds, Pratik Oswal, Head – Passive Funds, Motilal Oswal Asset Management Company, said, “In our endeavor to continuously simplify investing, we are launching two passive multi-asset funds catering to two risk profiles – aggressive and conservative. Customer’s opting for a moderate option could simply combine both funds (50:50). These FoFs offer a complete portfolio solution in a single fund with periodical rebalancing. With the thousands of investment options today – we believe this single fund is sufficient for an investor’s needs.”

In an environment where equity (domestic and international) is at all-time highs, debt yields at lows and gold being the highest performing asset class in 2020 – we believe a multi-asset solution is a low risk way of deploying capital. These funds are low cost and deliver good returns in most market conditions.

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