ICICI Prudential Asset Allocator Fund: Here is why you should avoid this!

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ICICI AMC is busy pushing its ICICI Prudential Asset Allocator Fund down the throats of any investor gullible enough to take their “advisor” seriously.  Why? Probably because the AMC sees this as an opportunity to secure AUM from investors scared of “current market scenario” by pushing a product that “invest in the right asset at the right time”. Whatever their reasons, here is why you should stay away from this fund.

This is a fund of fund investing in other equity and debt funds or ETFs. Its asset allocation will change as per market conditions based on an “in-house valuation model”. In other words, it claims to “Buy Low, Sell High Strategy through Equity Valuation Index”. This is published each month in their factsheets (July 2019 shown below) Equity valuation index is calculated by assigning equal weights to Price to earnings (PE), Price to book (PB), G-Sec*PE and Market Cap to GDP.

The AMCs sales pitch is, in spite of debt-fund like taxation, with indexation benefits, the gains from the Asset Allocator Fund will still be reasonable, even significant because it helps the investor control emotions. However, there are no convincing reasons to invest in this.

ICICI Prudential Asset Allocator Fund Here is why you should avoid this

As an analyst or as a potential investor, the fund has zero-history to speak of. As a historian, it has a rich history!  ICICI Prudential Asset Allocator Fund was launched in Dec 2003 as part of the AMCs “advisor series”. This was a set of fund of funds with varying equity exposure and therefore risk profile.

History of ICICI Prudential Asset Allocator Fund

If you ever wanted proof that distributors who call themselves “advisors” simply toe the line of the AMC or the commissions that they offer, this is it.

The fund was designed for the investor to use as a portfolio fund. That is a single fund to replicate a conservative or aggressive asset allocation. Digging through the AMC factsheet archive, one can see that right up to mid-2016 it was referred to as ICICI Prudential Advisor Series – Moderate Plan (Income Oriented Solution)

Mandate: A Fund of Funds scheme that seeks to generate long term capital appreciation and current income by creating a portfolio that is invested in the schemes of domestic or offshore Mutual Funds mainly having asset allocation to Equity and equity-related securities as well as fixed-income securities.

Here are some example portfolios. Keep an eye on the AUM and total expense ratio to understand why the AMC is pushing this fund.

Portfolio Jan 2016
ICICI Prudential Advisor Series – Moderate Plan (IPAS-MP) (Income Oriented Solution)
================================
ICICI Prudential Long Term Gilt Fund – Direct Plan – Growth 55.33%
ICICI Prudential Nifty ETF 25.80%
ICICI Prudential Focused Bluechip Equity Fund – Direct Plan – Growth 12.42%
ICICI Prudential Liquid Fund – Direct Plan – Growth 3.41%
ICICI Prudential Nifty Index Plan – Direct Plan – Growth 2.42%
Short Term Debt and net current assets 0.61%
==================================
Closing AUM as on 31-Jan-16 : Rs. 5.03 crores

Sep 2016
ICICI Prudential Advisor Series – Moderate Plan (IPAS-MP) (Income Oriented Solution)
=========================================================
ICICI Prudential Long Term Gilt Fund – Direct Plan – Growth 54.80%
ICICI Prudential Nifty Index Plan – Direct Plan – Growth 33.01%
ICICI Prudential Focused Bluechip Equity Fund – Direct Plan – Growth 8.45%
ICICI Prudential Liquid Fund – Direct Plan – Growth 3.48%
Short Term Debt and net current assets 0.26%
=========================================================
Closing AUM as on 30-Sep-16 : Rs. 5.48 crores
Total Expense Ratio @@ : Regular : 0.69% P. A.
Direct : 0.61% P. A

BY Jan 2017, the “Income Oriented Solution” was removed.

Jan 2017
ICICI Prudential Advisor Series – Moderate Plan (IPAS-MP)
=========================================================
Closing AUM as on 31-Jan-17 : Rs. 5.62 crores
ICICI Prudential Nifty Index Plan – Direct Plan – Growth 51.40%
ICICI Prudential Long Term Gilt Fund – Direct Plan – Growth 36.92%
ICICI Prudential Focused Bluechip Equity Fund – Direct Plan – Growth 7.65%
ICICI Prudential Liquid Fund – Direct Plan – Growth 3.47%
Short Term Debt and net current assets 0.55%
Total Expense Ratio @@ : IPAS-MP : 0.73% p. a.
IPAS-MP Direct Plan : 0.27% p. a

The fund name and mandate was changed once again in May 2018.

May 2018
ICICI Prudential Advisor Series – Conservative Fund (IPAS-CF)
An open ended fund of funds scheme investing in hybrid and debt oriented mutual fund schemes
=========================================================
ICICI Prudential Money Market fund – Direct Plan – Growth Option 57.73%
ICICI Prudential Nifty Index Plan – Direct Plan – Growth 41.85%
Short Term Debt and net current assets 0.42%
=========================================================
Total Expense Ratio @@ : IPAS-CF : 0.75% p. a.
IPAS-CF Direct Plan : 0.35% p. a.

Notice the change from Jan 2019 to Feb 2019

Jan 2019
ICICI Prudential Advisor Series – Conservative Fund (IPAS-CF)
=========================================================
ICICI Prudential All Seasons Bond Fund – Direct Plan – Growth 58.76%
ICICI Prudential Equity Savings Fund – Direct Plan – Growth 40.52%
Short Term Debt and net current assets 0.72%
=========================================================
Total Expense Ratio @@ : IPAS-CF : 0.75% p. a.
IPAS-CF Direct Plan : 0.35% p. a.
Closing AUM as on 31-Jan-19 : Rs. 6.69 crores

Feb 2019
ICICI Prudential Asset Allocator Fund
(An open ended fund of funds scheme investing in equity oriented
schemes, debt oriented schemes and gold ETFs/schemes
=========================================================
ICICI Prudential All Seasons Bond Fund –
Direct Plan – Growth 84.02%
ICICI Prudential Large & Mid Cap Fund –
Direct Plan – Growth 24.48%
Short Term Debt and net current assets -8.50%
=========================================================
Total Expense Ratio @@ :
IPAAF : 1.87% p. a.
IPAAF Direct Plan : 0.06% p. a.
Closing AUM as on 28-Feb-19 :
Rs. 17.52 crores

The fund changed to its current name. Look at the drop in direct plan ER and increase in regular plan ER. Look at the jump in AUM. So much for “impartial advise”

Mar 2019
ICICI Prudential Asset Allocator Fund
=========================================================
ICICI Prudential All Seasons Bond Fund** 72.75%
ICICI Prudential Large & Mid Cap Fund** 20.28%
Short Term Debt and net current assets 6.97%
=========================================================
Total Expense Ratio @@ :
IPAAF : 1.87% p. a.
IPAAF Direct Plan : 0.06% p. a
Closing AUM as on 31-Mar-19 :
Rs. 314.66 crores

May 2019
ICICI Prudential Asset Allocator Fund
=========================================================
ICICI Prudential All Seasons Bond Fund** 77.55%
ICICI Prudential Large & Mid Cap Fund** 16.34%
ICICI Prudential Floating Interest Fund** 5.49%
Short Term Debt and net current assets 0.62%
=========================================================
Closing AUM as on 30-Apr-19 :Rs. 765.19 crores
Total Expense Ratio @@ :
IPAAF : 1.59% p. a.
IPAAF Direct Plan : 0.07% p. a

July 2019
ICICI Prudential Asset Allocator Fund
=========================================================
ICICI Prudential Floating Interest Fund** 38.59%
ICICI Prudential Large & Mid Cap Fund** 34.08%
ICICI Prudential All Seasons Bond Fund** 26.89%
Short Term Debt and net current assets 0.44%
IPAAF : 1.41% p. a.
IPAAF Direct Plan : 0.06% p. a
Closing AUM as on 31-Jul-19 :
Rs. 2,339.68 crores

Isn’t it ironic that distributors are pushing  a fund of fund investing in direct plans?! (that is what the ** means above)

As per AMFI-based this report, as on July 2019, only 6% of the AUM is direct. Enough said.

Why you should not invest in ICICI Prudential Asset Allocator Fund

1. The fund is only a few months old. The fund has had a bizarre history of name changes and investment mandates. Sometimes investing in equity index funds and sometimes in active funds.

2. The fund will never be your only mutual fund. So its benefit (if any) will be severely diluted to the point of not having any benefit. An ‘advisor’ is supposed to say this to you, but then again they would have their eyes elsewhere

3. The fund cannot protect you from severe market crashes.  The fund still fell close to 40% during the 2008 crash.  If one argues, the strategy has since changed, then I will argue it has not been tested yet.

4. This is the equity valuation index. Please note that ICICI Asset Allocator is not the only fund to use this. ICICI Multi-Asset, ICICI Balanced Advantage also use this or a similar timing strategy. See: ICICI Prudential Balanced Advantage Fund : Performance With Low Volatility and ICICI Prudential Multi-Asset Fund Review: Suitable for new investors?

ICICI Equity Valuation IndexNotice that the model has not indicated “book partial profits” since July 2009! Why should I get scared and invest in this fund when I have wonderful choices from the same AMC: Balanced Advantage and Multi-asset. Both time the market, both have a good track record against the Nifty (see review links above) and both are taxed like equity.

Have a look at the five rolling return and rolling risk graphs.

ICICI Asset Allocator Fund Rolling Return comparison with other funds over five yearsICICI Asset Allocator Fund Rolling Risk comparison with other funds over five yearsICICI Balanced Advantage fund gives higher returns, is tax-friendlier and most importantly has the same risk as ICICI Asset Allocator over every possible five years in its history. So why would anyone choose Asset Allocator? Stay away from this fund. Stay away from your “advisor” who offers free advice and claims to get paid from the AMC for it. It is your money that the AMC is paying and that money is linked to the NAV.  Time to wake up and smell the coffee.

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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4 Comments

  1. Hi

    The fund has changed the criteria where to invest and has the ample flexibility to reduce equity to 0 and increase it to 100%.

    This is the ideal asset allocation where the product tries to capture maximum upside by increasing the equity up to 100% and it tries to protect downside by decreasing the equity exposure to 0% based on the certain value matrix you have already highlighted. Practically this is very very hard to do for individual investors due to the greed, emotions etc.

    ICICI Prudential Balanced Adv Fund has also changed its name in 2012-13. This does not mean the product is not good.

    Time will prove whether the product is good or not but the concept appears to be very good.

    If you study the asset managers globally, 1/3 of the total asset are managed under this kind of asset allocation products. This means the world’s market has accepted it.

  2. Intersting thing to note is that in 2019 Jan it had AUM of 7 Crores. In 2019 July it has AUM of 2600 Crores 🙂 – What happened between Jan and July

    1. What A Shocker of an AUM growth!!! ICICI is at it again by hook and crook. The thing that shocks us more is that the difference between Direct and Regular plan is nearly the expense itself which is the commissions. They paid 1.8% as commission alone at one point of time.
      And do remember another 1-2% goes as expenses for the individual funds invested by this FoF.
      What is the overall expenses then? ULIPs look like gold compared to this loot

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