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Should you invest in ICICI Prudential’s multi asset fund?

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The ICICI Prudential Passive Multi Asset Fund of Funds (FoF) is a passive counterpart to the AMC’s highly successful Balanced Advantage Fund (BAF), except that it also includes allocation to gold and foreign ETFs.

The FoF envisages a 25-65% allocation to domestic equity, 25-65% to debt, 0-15% to gold and 10-30% to international equity. All of these exposures will be taken through ETFs.

While the underlying ETFs are of passive nature, the selection of ETFs and asset allocation will be actively done by the fund managers of the scheme.

However, the expense ratio of the FoF including the underlying ETFs will be capped at 1% for the regular plan. According to a person with knowledge of the matter who declined to be named, the direct plan is likely to see an expense ratio of around 0.40%. The new fund offer (NFO) for the FoF opened on 27 December and will close on 10 January 2022.

 

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According to Sankaran Naren, chief investment officer (CIO) at ICICI Prudential Asset Management Company, “The FoF will allocate between equity and debt and will largely refer to ICICI MF’s in-house equity and debt valuation model.”

The in-house model is reflected in the ICICI Prudential Balanced Advantage whose unhedged equity level is around 37% as on November-end as per data provided by Value Research and the ICICI Prudential All Seasons Bond Fund (for debt duration).

The FoF will also be guided by the AMC’s in-house market-cap model, which is used by the AMC’s Flexicap Fund. This scheme is 80% in large caps at present, 15% in mid-caps and 5% in small-caps.

According to the product presentation, the FoF will be allowed to invest in a large universe of ETFs, which includes the ETFs of other fund houses as well, both domestic and global. The ETFs in its universe include both plain vanilla ones tracking the Nifty 50 and Sensex as well as factor driven ones such as Low Vol or sector specific ones like FMCG. On the debt side, given ICICI Prudential’s lack of a strong suite, the FoF can look at more established products such as the Bharat Bond series managed by Edelweiss AMC.

On the international side, the product basket includes ETFs managed by BlackRock (the iShares series), Invesco and VanEck. These track markets like the US, China, Russia and Japan as well as thematic ETFs such as dividend aristocrats or gold miners.

The ICICI Prudential AMC presentation outlines four major reasons why you should invest. First, the fund house has access to the best quality research and expertise on various markets and second, it can assign the right weights to them. Third, when an investor directly invests and rebalances between asset classes, they can end up paying taxes on every redemption. Fourth, emotions stop investors from taking rational decisions and rebalancing when there are extreme events. Financial experts have expressed some scepticism.

“Individuals who have distributors or financial advisers can get their asset allocation done through these intermediaries. This will be more tailored to their financial goals and time horizons. I don’t think they have a need for an asset allocator fund, whether active or passive,” said Kalpesh Ashar, founder, Full Circle Financial Planners and Advisors. “The debt taxation of this product, unlike a BAF is a negative,” said Munish Randev, founder, Cervin Family Office.

However, for India’s growing tribe of do-it-yourself or DIY investors, the fund has the potential to be a long-term ‘all-weather’ product.

Since it is open-ended, such investors can wait for the fund to establish a track record and spell out its portfolio more clearly before taking a call.

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