This is a review of ICICI Prudential Multi-Asset Fund. We explain why the low volatility of this fund makes it a good choice for new investors. Prior to the SEBI categorization rules kicked in, this was known as ICICI Dynamic Plan fund. This was classified by the AMC as an “open-ended diversified flexi-cap opportunities fund”.
Dynamic Plan fund could increase allocation to debt (cash) + derivatives when the equity market became overvalued to reduce volatility, what ICICI MF refers to as buy low and sell high strategy. However, the fund always remained an equity fund with regard to taxation by maintaining 65% exposure to equity.
Since 2010, ICIC Dynamic Plan (& its sister fund, ICICI Balanced advantage) have been managed by using a Price to Book Value model (pdf download). The AMC reference for this file is here.
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Investment Strategy of ICICI Prudential Multi-Asset Fund
The investment strategy of ICICI Multi-asset Fund continues to be similar to that of ICICI Dynamic Fund. The gist is shown in this screenshot from the above-mentioned pdf file.
When the PB ratio is high, it indicates an overvalued market and fund would reduce equity exposure. When the PB ratio is low, it indicates an undervalued market and the equity exposure in the fund can increase up to 80% This is how the equity exposure has changed in the past (source above pdf file).
Changes in scheme mandate
To fall in line with SEBI rules, the AMC changed ICICI Dynamic fund to ICICI Multi-asset fund. A multi-asset fund should have, at all times 10% of equity, 10% of gold and 10% of bonds. It first announced that equity exposure can vary from 10% to 80% in ICICI Multi-asset.
However, considering the significant AUM in the fund, to assuage concerns over the tax status, from 1st April 2019, the fund will now ensure 65% to 80% in stocks and arbitrage opportunities. This was a needless double change, but that is how it is.
Officially, the PB/V model is not mentioned and all we have is (above link). This was the case with Dynamic Plan too.
The actual percentage of investment in other asset classes will be decided after considering the prevailing market conditions, the macroeconomic environment (including interest rates and inflation), the performance of the corporate sector, the equity markets and general liquidity and other considerations in the economy and markets.
Analysis & Summary
This is the 90-day rolling risk of ICICI Multi-asset fund since May 28th 2018 (after the change). It has a fantastic track record of beating the Nifty in terms of risk and return but that is no longer relevant as the asset allocation has changed.
Notice that red line is a lot more “steadier” than the white one. The multi-asset allocation (10% to gold + 10% to bonds minimum) plus the fund management is responsible for this.
It may or may not be possible for the fund to beat Nifty 50 going forward but the lower risk is pretty much guaranteed. There are two layers of it: The multi-asset allocation plus the active management. The latter is necessary to try and beat its benchmark, but this also can increase the risk.
70% Nifty 50 Index + 20% Nifty Composite Debt Index + 10% LBMA AM Fixing Prices
Therefore considering its excellent track record, its new asset allocation, mandate to remain an equity fund, I believe this is a good choice for new investors (young and old) scared of market volatility with reasonable return expectations.
My investments
I am invested in this fund since Jan 2011. The consolidated XIRR as on date (regular plan + direct plan) is 13.3%. What you see above is the direct plan investment evolution. About 27% of the equity exposure for my son’s future needs goals is in this fund. All these (and much more) can be obtained from the freefincal mutual fund and financial goal tracker. As many may be aware by now, I prefer funds that do not provide stellar returns and then slump down. This has given my steady but unspectacular returns in the past and I expect it to do the same.
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