What are Asset Allocator Fund of Funds?

These funds invest in other equity, debt and gold mutual funds.
By Ravi Samalad |  28-06-22 | 

Hybrid Funds are gaining popularity due to their ability to navigate volatility by actively shifting their equity, debt, and gold exposure to offer a smooth ride to investors.

There are six types of Hybrid Funds that vary depending on the quantum of exposure towards different asset classes.

Investors who are not sure about which Hybrid Fund to choose from can look at Multi Asset Fund of Funds (FoF) or Asset Allocator Funds, where the allocation to different investment style/asset class/market cap/sector is decided by the fund manager.

As the name suggests, these fund of funds, invest in other mutual funds. Unlike Equity FOFs, which invest only in other equity mutual funds, Multi Asset FOFs will invest in a mix of Equity, Debt and Gold Mutual Funds.

How are they different from Multi Asset Funds? Multi Asset Funds invest in three asset classes: equity, debt and gold, with a minimum allocation to each at 10%. They invest directly in stocks, gold, and debt securities.

On the other hand, Multi Asset Fund of Funds or Asset Allocator Funds will invest in direct plan versions of equity, debt and gold funds. So the underlying holdings are mutual funds instead of stocks.

Since Multi Asset FoFs operate under Fund of Fund structure, they are taxed like debt funds. Under debt funds, if you sell your holdings before three years, the income is taxed as per your slab. If you sell after three years, you need to pay long term capital gains tax at 20% with indexation.

Multi Asset Fund of Funds can invest in in-house funds or funds managed by other asset management companies. A majority of these funds invest in in-house schemes.

There are two types of Multi Asset or Asset Allocator FoFs – active Multi Asset FoFs and Passive FoFs. Passive Multi Asset FOFs invest in Index Funds and Exchange Traded Funds.

Here’s a look at the different funds under this category, their underlying holdings, and their performance.

ABSL Asset Allocator Fund of Fund

  • Investment Style: Large Growth
  • Asset Allocation%: 42.90 (Equity), 32.49 (Bonds), 15.43 (Cash), 9.18 (Other)
  • Top 5 holdings: Aditya BSL Low Duration, Aditya BSL Short Term, Aditya BSL Dynamic Bond, Aditya BSL Gold ETF, Aditya BSL Frontline Equity
  • Maximum Drawdown: -16.05%
  • Performance: 7.06% (2019), 21.19% (2020), 19.26% (2021)

HDFC Asset Allocator Fund of Fund

  • Investment Style: Large Blend
  • Asset Allocation%: 51.28 (Equity), 21.47 (Bonds), 15.61 (Cash), 11.64 (Other)
  • Top 5 holdings: HDFC Top 100, HDFC Flexi Cap, HDFC Short Term Debt, HDFC Low Duration, HDFC Gold ETF
  • Maximum Drawdown: NA
  • Performance: NA (2019), NA (2020), NA (2021)

HDFC Dynamic PE Ratio Fund of Funds

  • Investment Style: Large Blend
  • Asset Allocation%: 51.86 (Equity), 34.27 (Bonds), 13.87 (Cash)
  • Top holdings: HDFC Mid Cap Opportunities, HDFC Top 100, HDFC Small Cap, HDFC Low Duration, HDFC Medium Term Debt
  • Maximum Drawdown: -17.96%
  • Performance: 5.97% (2019), 14.39% (2020), 21.59% (2021)

HSBC Managed Solutions India

  • Investment Style: Large Blend
  • Asset Allocation%: 81.97 (Equity), 12.72 (Bonds), 5.32(Cash)
  • Top holdings: HSBC Large Cap Equity, HSBC Small Cap Equity, HSBC Short Duration, HSBC Debt, HSBC Flexi Debt
  • Maximum Drawdown: -23.99%
  • Performance: 8.05% (2019), 17.27% (2020), 27% (2021)

ICICI Prudential Asset Allocator Fund of Fund

  • Investment Style: Large Blend
  • Asset Allocation%: 05 (Equity), 42.62 (Bonds), 15.30 (Cash), 11.03 (Other)
  • Top 5 holdings: ICICI Prudential Floating Interest, ICICI Prudential Savings, ICICI Prudential Gold ETF, ICICI Prudential All Seasons Bond, ICICI Prudential Large & Mid Cap
  • Maximum Drawdown: -19.26%
  • Performance: 9.70% (2019), 13.38% (2020), 16.59% (2021)

Kotak Multi Asset Allocator Fund of Fund – Dynamic

  • Investment Style: Large Growth
  • Asset Allocation%: 70.65 (Equity), 13.80 (Bonds), 6.57 (Cash), 8.98 (Other)
  • Top 5 holdings: Kotak Bluechip, Kotak Emerging Equity, Kotak Bond, Kotak Nifty ETF, Kotak Gold ETF
  • Maximum Drawdown: -15.74%
  • Performance: 10.33% (2019), 24.97% (2020), 25.02% (2021)

Quantum Multi Asset Fund of Fund

  • Investment Style: Large Blend
  • Asset Allocation%: 34.62 (Equity), 7.92 (Bonds), 42.87 (Cash), 14.59 (Other)
  • Top 5 holdings: Quantum Liquid, Quantum Nifty 50 ETF, Quantum Gold ETF, Quantum Dynamic Bond, Quantum Long Term Equity Value
  • Maximum Drawdown: -8.60%
  • Performance: 7.21% (2019), 13.14% (2020), 7.36% (2021)

Nippon India Asset Allocator Fund of Fund

  • Investment Style: Large Blend
  • Asset Allocation%: 46.39 (Equity), 23 (Bonds), 10.12 (Cash), 20.50 (Other)
  • Top 5 holdings: Nippon India ETF Gold BeES, Nippon India Short Term, Nippon India Large Cap, Nippon India Growth, Nippon India Small Cap
  • Maximum Drawdown: NA
  • Performance: NA (2019), NA (2020), NA  (2021), 12.45% (since inception as of June 27, 2022)

Franklin India Multi Asset Solution Fund

  • Investment Style: Large Growth
  • Asset Allocation%: 25.08 (Equity), 1.04 (Bonds), 47.67 (Cash), 26.21 (Other)
  • Top 5 holdings: Nippon India ETF Gold BeES, Franklin India Bluechip, Franklin India Liquid, Franklin India Short Term Income, Franklin India S/T Inc Segregated
  • Maximum Drawdown: -25.30%
  • Performance: NA (2019), NA (2020), NA (2021), 4.58% (since inception as of June 27, 2022)

 Franklin India Dynamic Asset Allocation Fund of Funds

  • Investment Style: Large Growth
  • Asset Allocation%: 47.43 (Equity), 1.14 (Bonds), 50.94 (Cash), 0.49 (Other)
  • Top holdings: Call, Cash and other assets, Franklin India Flexi Cap, Franklin India S/T Income, Franklin India S/T Inc Segregated
  • Maximum Drawdown: -26.14%
  • Performance: 5.79% (2019), -7.69% (2020), 36.25% (2021)

Passive Strategies

ICICI Prudential Passive Multi Asset Fund of Fund

  • Investment Style: Large Blend
  • Asset Allocation%: 57.64 (Equity), 17.58 (Bonds), 13.91 (Cash), 10.87 (Other)
  • Top 5 holdings: ICICI Pru Gold ETF, ICICI Pru Liquid ETF, BHARAT Bond ETF April 2023, SBI ETF 10 YEAR GILT, iShares MSCI Japan ETF
  • Maximum Drawdown: -%
  • Performance: NA (2019), NA (2020), NA (2021), -3.35% (since inception as of June 27, 2022)

Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive

  • Investment Style: Large Blend
  • Asset Allocation%: 71.33 (Equity), 16.67 (Bonds), 2.61 (Cash), 9.39 (Other)
  • Top 5 holdings: Motilal Oswal Nifty 500, Motilal Oswal S&P 500 Index, Motilal Oswal 5 Year G-Sec ETF, ICICI Prudential Gold ETF
  • Maximum Drawdown: NA
  • Performance: NA (2019), NA (2020), NA (2021), -7.82% (YTD as of June 27, 2022), 4.90% (since inception as of June 27, 2022)

Should you invest?

Rushabh Desai, Founder, Rupee With Rushabh Investment Services, does not advocate investing in these funds. “I am not recommending Multi Asset Funds. It is still comparatively easy to manoeuvre between two asset classes but a bit more challenging between three or four asset classes. Increase in asset classes within one product will bring more volatility and cyclicality to it. It is better to keep asset classes separate and invest in different funds based on one’s goals, time horizon and asset allocation mainly from a better risk mitigation point of view."

Although the total expense ratios are capped by the regulator, Rushabh points out that investors should be mindful of the costs incurred in such funds. "Certain FoFs would have high expense ratios which are uncalled for. Thus, you might as well invest in different funds directly of different asset classes rather than through FoFs."

Viral Bhatt of Money Mantra says that investors need to have at least three years time horizon while investing in these funds. “Investing in one asset class usually leads to losses during adverse market conditions. Hence, during a volatile market scenario, the correct asset allocation is the best approach as each asset class performs differently across various market cycles.

Asset allocator FoF is mandated to invest in domestic debt-oriented schemes, equity-oriented schemes, and Gold ETFs of any fund house. That said, note that most Asset Allocator Funds are biased towards their own schemes despite having a higher expense ratio. I feel investors with higher risk tolerance and an investment horizon of 3+ years should invest in the asset allocator fund of funds as they have substantial holdings in stocks.”

Clarification

It is clarified that Morningstar incorrectly quoted Rushabh Desai in the earlier version of this article stating each underlying fund held by the FoF will charge its own expense ratio, in addition to the Total Expense Ratio (TER) charged by the feeder fund. It is clarified that the Securities and Exchange Board of India (SEBI) has capped the maximum expense ratio for FoFs at 2.25% for equity funds and 2% for other than equity-oriented funds, including the TER of underlying schemes.

Add a Comment
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PRAKASH GURBA
Jun 28 2022 08:06 PM
 1.It is always said that investing in Equity Funds and debt funds separately is better and more efficient. But simple, practical and feasible solution for maintaining Asset Allocation is to go for appropriate category of Hybrid Equity funds.
2. Can Equity FOF - debt taxation be ever less than that of Equity taxation for long term investors? Please Illustrate.
3. FOFs report only the TER charged by that fund house and never the EFFECTIVE expense ratio. How the investor has to know whether Net Expense Ratio is less than SEBI limits ?
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