New program introduced by Sundaram Multi Asset Allocation Fund

New program introduced by Sundaram Multi Asset Allocation Fund

New program introduced by Sundaram Multi Asset Allocation Fund

The Sundaram Multi Asset Allocation Fund invests in equities, gold, and fixed income securities in an effort to reduce portfolio volatility. Fund companies are actively launching multi-asset allocation funds in light of the robust returns on equity and the solid increase in gold in 2023.

The Sundaram Multi Asset Allocation Fund invests in equities, gold, and fixed income securities in an effort to reduce portfolio volatility.

The season for hybrid mutual fund (MF) strategies is here. On January 5, the Sundaram Multi Asset Allocation Fund (SMAAF) was introduced. The plan will make investments in equities, gold, and fixed income, among other asset types.

What's being offered?

By diversifying across three asset classes, the fund seeks to generate stable returns regardless of market circumstances. She will concentrate more on gold and equity of them.

SMAAF will benefit from equity taxes even though it is a multi-asset allocation fund since it will invest at least 65% in shares. A minimum of 10% will be invested in fixed income instruments and a maximum of 25% in gold will be allocated to the program.

SMAAF would rank 17th out of the 50 trillion rupee Indian mutual fund industry's multi-asset allocation funds, according to ACE MF. In order to lessen the likelihood of losses at such levels, fund houses and consultants have actively marketed multi-asset allocation funds throughout 2023, given the growing prices of equities, gold, and interest rates.

Investors thought these funds had value as well. About Rs 20,000 crore was the net inflow (more money coming in than going out) for the multi-asset fund. After small and mid-cap funds, this was the third-largest inflow among all MF types in 2023. Thematic funds, passive funds, and arbitrage funds (short term) all had increased net inflows.

What functions?

The scheme's greatest strength is its diversity. The fund's net asset value (NAV) will not decrease due to a significant downturn in the performance of a single asset class, such as equities, since it invests across a variety of asset classes.

Fund house data indicates that in 2021 and 2017, the Nifty 50 index, which represents the equity asset class, outperformed 10-year government securities, which represent stocks, gold, and fixed income. particularly in small- and mid-cap companies, even in 2023. Because of the current Israel-Hamas conflict and the geopolitical unrest brought on by COVID-19, gold was predicted to perform better in 2018, 2019, 2020, 2022, and 2023. Gold kept up its strong showing.

In light of the scheme's nature, the fund strives for prudent stock management. The scheme's equity co-manager, Bharat S, reports that 75–80% of the equity allocation would be placed in large-cap equities. SMAAF will be managed by five fund managers who will divide their time across the three asset classes. The last 25–30% will be allocated to mid- and small-cap equities. We're going to use the flexi-cap tactic.

What's not

Although it's a crowded industry, Sundaram Mutual Fund feels compelled to add a newly popular category to its lineup of products. In 2023 alone, six multi-asset allocation funds were introduced. As of November 2023, ACE MF reports that there were 16 schemes in this category with a total asset value of Rs 50,848 crore.

Comparing multi-asset allocation funds may be challenging since they use various methodologies. Certain funds, such as the DSP Multi Asset Allocation Fund and the Nippon India Multi Asset Fund, invest in foreign equities in addition to debt, gold, and stocks. Silver is another asset that the Edelweiss Multi Asset Allocation Fund owns. Smaller investments are made in real estate investment trusts (REITs) via schemes such as the SBI Multi Asset Allocation Fund.

SMAAF's primary emphasis will be on gold and stocks. There is practically any link between these two asset classes, and gold has been shown to outperform stocks among alternative asset groups. This guarantees variety, according to Bharat S.

Although this makes reasonable, given that lower interest rates are anticipated this year, it is unclear how a reduced allocation to fixed income would be implemented. Debt securities' prices increase along with the NAV of funds that invest in them when interest rates decline.

moneycontrol viewpoint

Multi-asset allocation seems interesting and excellent in principle. However, the fund managers' choices will also have an impact on SMAAF's performance, just as they do with any actively managed fund. Financing managers' methods for allocating assets are also crucial. The greatest return in this category in 2023 was 29%, with a minimum return of 13%. A minimum of 6 percent and a maximum of 17 percent loss is anticipated in 2022. Although it is a fantastic notion, the multi-asset approach is not very promising.

Consider the fund only once it has established a track record.