Should you invest in ICICI Pru Passive Multi-Asset FoF?

Ideas often seem simpler than the effort required to execute them. Take, for example, the desire to gain exposure to multiple assets such as domestic stocks, foreign stocks, fixed income and gold. While this approach provides good portfolio diversification and potentially offers optimal risk-adjusted returns, DIY investors also face many practical challenges during implementation viz. selecting appropriate assets, assigning weighting to each asset, regularly reviewing and rebalancing complications, and finally achieving tax efficiency.

From this perspective, multi-asset mutual funds offer a simple and unique solution to a multitude of these problems, thus making investing easier. ICICI Prudential MF has launched a new fund offering, ICICI Prudential Passive Multi-Asset Fund of Funds, open for subscription during the period from December 27 to January 10. The product has been designed as a fund of funds (FoF) that will invest in all asset classes through exchange traded funds (ETFs) and index funds, with active involvement in class identification and of the combination of assets.

About the fund

A multiple asset allocation fund, in accordance with the standards, must have investments in at least 3 asset classes with a minimum allocation of at least 10 percent in each. There are basically two types of such funds in the industry. First, the fund invests directly in various asset classes. Second, it is an FoF structure that invests in a mix of mutual funds / ETFs / index funds focused on stocks, debt and other assets. ICICI Prudential Passive Multi-Asset Fund of Funds belongs to FoF segment, where in the recent past we have seen launches of HDFC and Motilal Oswal etc. ICICI Prudential Passive Multi-Asset FoF will provide an allocation across a wide range of asset classes such as National Equity ETFs and Index Funds (25-65%), Debt ETFs and Index Funds (25-65%), Gold ETFs (0 -15%) and global equity ETFs and index funds (10-30 percent). Exposure to national equities aims to generate growth through the history of India. Debt allocation will try to ensure stability. Exposure to global equities aims to provide a diversification advantage and an investment in megatrends. Gold can serve as a potential hedge against inflation.

For national equity allocation, FoF can choose from ICICI Pru’s 25 products (such as market cap, sector / theme or factor-based) or any other program launched in India. For debt / fixed income, the universe includes liquid and gilt ETFs with products of varying maturity and target maturity. In view of the interest rate situation, the fund house considers intermediate duration to be the riskiest segment. Therefore, it will lean more towards low and high duration. Gold ETFs will be the tool of choice for playing bullion. For global equity exposure, the FoF will choose from 30 ETFs (from stable iShares, ProShares, VanEck, Invesco, etc.) that invest in world / country and theme specific ETFs.

The FoF will adopt the VTT investment approach (valuations, triggers, techniques). The assessment will determine whether an asset class is expensive or cheap based on various metrics. In terms of triggers, the FoF tracks macroeconomic parameters, investment metrics, business and consumer sentiment, and global factors. These triggers make it possible to identify the different asset classes and subsequently the allocation is decided. Techniques will be used to select ETFs / index funds based on their performance.

According to IPru, the valuation of the forward P / E of Nifty 50 is approaching + 1SD (standard deviation) above the 10-year average and the market capitalization to GDP remains above average, even though the India continues to benefit from a demand premium over world markets. Overall, the asset allocation will be actively managed and monthly rebalancing will be carried out; however, if there are specific triggers that occur, an intermediate rebalancing may occur.

Our opinion

Building a multi-asset portfolio on your own and then managing it dynamically according to market conditions may not be easy for all investors. Therefore, these products can offer a ready-made solution for them. That said, with each fund house applying its own methodology to trigger the switch from one asset class to another, the benefit investors will derive from it depends on the right asset allocation decisions by the fund manager at the right time. . The returns of existing asset allocation FoFs fall within a wide range of one- and three-year yields of 5 to 56 percent and 5 to 29 percent (CAGR), respectively. Although the new fund is exposed to the risk of the fund manager, it is not excessively high compared to other products.

ICICI Prudential AMC has, over the years, built a reputation for managing various asset classes and thematic mandates such as ICICI Pru Balanced Advantage (4 stars in BL Star Track Rating), ICICI Pru Equity & Debt Fund ( 5 stars), ICICI Pru Value Discovery (5 stars), ICICI Pru All Seasons Bond Fund, etc. To control the risks of sector and thematic ETFs, the fund house will have flexible limits

FoFs are taxed like debt funds. While the (regular) expense ratio of multi-asset funds is between 50 and 150 basis points, the total cost of the new fund will be 100 basis points.

FoF will allocate across a wide range of asset classes

He will adopt the VTT investment approach (valuations, triggers, techniques)

Note that FoFs are taxed as debt funds

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