Skip to main content

Choose MF with a mix of asset classes

 

 

THERE are a lot of mutual fund (MF) schemes that have a mixture of various asset classes. When choosing to invest in these MFs, certain factors have to be kept in mind.

In recent times, several funds have entered the market that invest in a mixture of debt, equity and gold.


These funds have several distinguishing features and hence the investors must be able to take a clear decision.


Here are a few factors that investors can consider while making a decision.
Nature of fund: The nature of the funds, which invest in debt, equity and gold, seeks to achieve several objectives for investors. Majority of the investments in these funds are in debt, which defines the basic nature of the fund to provide a steady stream of earnings for the investor. In addition, there is a small part that is allocated to equity for the purpose of increasing returns for the funds.


This is similar to several monthly income plans that are present, but the major distinguishing factor is that there is also a small allocation that is made for gold.
This adds a third dimension to the entire investment and hence, gives a different nature to the fund.


Manner of fund allocation: The first thing that an investor has to decide is the route that they take while making the investment. The first route involves putting money in a particular fund where the fund manager chooses asset allocation.

In this case, the investor relies on the manager for the purpose of making the call on the proportion in each asset class and also when to remain in cash and when a change is desired.

The other option is to decide on asset allocation themselves by choosing funds that invest in a single asset class. What the investor does is select pure equity or pure debt funds and then allocate the required percentage of their portfolio to these funds. So an investor who also wants gold exposure, will select a gold exchange-traded fund (ETF) for investment. The difference from the earlier case is that there is not a single fund where a mixture will be involved.


The benefit here is that the investor can select a specific nature of the fund for each asset class.


Investment objective: The investor also needs to be clear about what they actually want to achieve when they are investing in a fund that has several asset classes.

The nature in which the i e portfolio of the fund is constructed will determine the a returns generated. For ex. ample, when it comes to the e question of the fund with the three asset classes of r debt, equity and gold, there is a clear demarcation.
e The debt will provide stability, while equity will pro l vide higher returns and gold y will act as a hedge against inflation. However, one needs to look at the actual situation e and determine whether this is correct and if the objectives can be achieved.

A careful study will show A that in the past few years the behaviour of gold ha been different from what was witnessed earlier and due to this reason, there is varied manner in which the entire portfolio will behave This needs to be taken into consideration because this will be the determining factor about the nature o the investment. An investor who expects gold and equity to behave in an investment, might realise that they are actually moving similarly requiring them t change their decision.

Finally, the investor also has to realise that mixing far too many asset class together might result in difficulty in understanding f what is actually happening e Gold exposure: The working of monthly income plans and how equities and debt interact to provide re d turns is well known to investors due to their past experience with these funds.

n There are different type s of impact depending upon the nature of exposure of equity in the portfolio. The investor needs to look at the exposure that will be allowed to gold and then ask questions about its effectiveness.

Some of these would relate to the extent of gold exposure in the portfolio and then looking at whether this has a meaningful impact on overall returns. For example, what is the maximum exposure to gold that the fund will have is important.

A very low exposure might be insignificant in the overall scheme of things. In addition, the fact as to whether there will be a permanent exposure to gold or whether this will vary depending upon the viewpoint of the manager is important.

This happens because in the latter case, it could be that for a long time period there is no gold exposure whereby the scheme then resembles a monthly income plan that is what the investor might not have wanted in the first place.

 

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...

Capital Protection Oriented Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Capital Protection Oriented Funds   Erosion of capital is one of the key concerns for investors wanting to invest in equity mutual funds. To address this concern, asset management companies have launched Capital Protection Oriented Funds (CPOFs). What are CPOFs? CPOFs are generally three to five-year, closed-ended funds where 70-80% of the portfolio is invested in fixed income securities, which mature on or before the scheme's tenure. The investment in fixed income securities grows to 100% at the end of the tenure, providing the investor with capital protection. The remaining portion (20-30%) is used to take exposure to equity, which provides the upside. Exposure to equities is either by directly buying equity stocks (plain vanilla CPOFs) or by b...

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...

SBI Small Cap Fund

SBI Small Cap Fund scheme seeks to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme by investing predominantly in a well diversified basket of equity stocks of small cap companies. SBI Small Cap Fund has widened its margin of outperformance relative to its category and benchmark in the last one year, earning itself a five-star rating. The fund shows a hefty 18 percentage-point outperformance relative to its peers in the last one year, 5 percentage points over three years and 4 percentage points over five years. Needless to say, it has also outpaced its benchmark to deliver convincing five-year annualised returns of 37 per cent. A believer in the credo that a small market cap does not reflect business quality, the fund looks for five attributes in the stocks it buys: competitive advantage, return on capital, growth, management and valuation. SBI Small Cap Fund is among the few in this space to remain at quite a man...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now