Multi-asset funds provide asset allocation across equity, debt and gold. But, they have two characteristics that play spoilsport — taxation and active security selection. While funds solve the latter using other mutual funds or ETFs, taxation remains an issue. If average equity holding is at least 65% for the 12 months preceding redemption date, equity tax rules apply. Else, debt fund tax rules apply.
So, funds either are high equity or low equity — they don’t make the transition to avoid tax consequences.
In an overvalued market, fund managers cannot go below a certain amount of equity in the portfolio (and vice versa). There are other benefits, though — rebalancing trades within the fund will not have tax consequences. In this case, Nippon will maintain equity between 50% and 80%—most likely to be taxed as an equity mutual fund.
Also, fund managers will select individual stocks (both domestic and international) for the fund and not restrict themselves to asset allocation across funds. We think this creates too many moving parts that can deter performance.
Subject to the market — the backtest suggests average 12% every year, but we can expect high single digits
There is no information on expense ratios — we could see a high number here (~1.5–2%)
Exit load of 1% for 1 year
Can be bought and sold through existing mutual fund platforms
Similar to other equity funds
20% allocation towards international stocks that provides meaningful diversification
Fixed income will include ~15% of AA instruments (not all AAA)
We don’t see a fit — it will not be a part of our broader asset allocation. If you are exploring this fund, there are other multi-asset funds (with passive vehicles and international exposure) that you can consider.
We echo our peers at Capitalmind.