Last Updated on December 29, 2021 at 5:39 pm
Motilal Oswal AMC its new fund – Motilal Oswal Multi-Asset Fund – that on the face of it looks like an interesting, exciting idea (like every other NFO). Let us dig deeper to find out more about the investment strategy and who is the fund suitable for.
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What is Motilal Oswal Multi-Asset Fund? It is an open-ended scheme investing in Equity, International Equity Index Funds/ Equity ETFs, Debt and Money Market Instruments and Gold Exchange Traded Funds
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What is a multi-asset fund as per SEBI norms? An open-ended scheme investing in three different asset classes with a minimum 10% exposure at all times. International equity is not a separate asset class. Most multi-asset funds use domestic equity, bonds and golds as the three asset classes. The asset allocations can either be static (rebalanced regularly) or dynamic (rebalanced based on rules o tactically)
What is the asset allocation limits for Motilal Oswal Multi-Asset Fund? According to the scheme information document, the fund can invest (A) 10% to 50% in equity (out of this 0 to 20% in international equity) (B) 40% to 80% in bonds and (C) 10% to 20% in gold
What is the taxation status of the fund? Since it will not invest more than 50% in equity, it will be classified as a non-equity fund for taxation. Tax as per slab for gains from units less than or equal to three years old and 20% tax with indexation for gains from older units.
Motilal Oswal rather amusingly claims in the scheme presentation (to justify the non-equity taxation)
Taxes are a happy outcome…asset allocation done for avoidance of taxation can result in avoidance of gains…the very purpose of the allocation in the first place; in any case taxation differential between equity and debt funds’ gains has come down . Using short positions on a long equity portfolio to change taxation results in sub-optimal returns on the short component of asset allocation…
“Happy outcome”? Does this mean I should be happy to pay the tax for gains from this fund? Of course, like all AMCs they too change the tune if you look at the presentation for another fund. Take, for example, Motilal Oswal Dynamic Equity Fund, in its scheme presentation, the AMC changes tune conveniently:
The most beneficial part of a Dynamic Equity Fund is not only do you get the best of Equity and Debt market, but the tax treatment is that of an Equity fund. Hence we see we get the best of both worlds:
• Safety of a debt fund without the high tax implications and
• Returns of an equity market with lower volatility
So when you invest in their equity-oriented hybrid scheme, you get “the best of both worlds” and when you invest in their non-equity hybrid scheme, you need to tell yourself “taxes are a happy outcome” and pay more. As mentioned earlier – Can we invest in Quantitative Mutual Funds (Quant Mutual Funds)? – all AMCs are guilty of such contradictory sales pitches. Betraying a lack of a holistic investment strategy with NFOs launched for just one purpose – a quick boost in AUM with clever marketing campaigns and story plants.
Where will the scheme invest? That depends on what you read. If you read the scheme document (who does?) then the scheme will have the “flexibility” to invest just about anywhere SEBI would allow for an asset class “just in case”. If you look at the scheme presentation (which all AMCs count on) then the AMCs tend to include all the nice phrases that investors like to see.
If you read the scheme document: Domestic Equity: “The Fund Portfolio shall comprise of high conviction stock ideas from across market-capitalization levels/sectors. The portfolio stocks may be potentially concentrated in a few market capitalization levels/sectors which are expected to do well and have lower downside risk”. “The Fund shall follow an active investment style using bottom-up stock picking”.
If you read the scheme presentation (which is not legally binding): Domestic Equity: “Large Cap Oriented bottom-up stock picking ”
Debt (Scheme document): The Fund shall invest in various types of permitted Debt Instruments including Government Securities, Corporate Debt, Other debt instruments and Money Market Instruments of various
maturities and ratings with the objective of providing liquidity and achieving optimal returns
Debt (presentation): “Very high credit quality “; Predominantly investing in AAA securities, PSU Bonds,
G-Sec, SDLs and T-bills/TREPS. Medium-term maturity ~3-5 Years maturity profile. Pristine high credit quality ongoing basis
It will a gold ETF for gold and Motilal Oswal S&P 500 Index Fund for international equity. Why did they not choose Motilal Oswal NASDAQ-100 ETF and lower expenses is a question one has to at least ask
What is the investment strategy of Motilal Oswal Multi-Asset Fund? The Fund will use the Motilal Oswal Value Index (MOVI) to determine domestic equity and debt allocations and reduce volatility. The international equity and gold exposure levels may be expected to be relatively stable from the illustrations in the scheme document and scheme presentations.
The MOVI is calculated using the 30 daily moving average of the price to Earnings (P/E), Price to Book (P/B) and Dividend Yield of the Nifty 50 Index. Read more: Deconstructing the Motilal Oswal Value Index (MOVI) and Market Timing with the Motilal Oswal Value Index (MOVI)
This is a screenshot from the scheme document.
Who should invest in Motilal Oswal Multi-Asset Fund? The AMC has an equity-oriented hybrid fund as mentioned above using a similar strategy. See Motilal Oswal Dynamic Fund Review: Balancing Returns and Risk. This may be better suited for investors wanting returns close to the Nifty at lower risk for the longer term.
Instead of launching this new fund, the AMC could have added international equity exposure to their dynamic fund to make it more attractive. As far as I could tell, there are no restrictions in doing so. This multi-asset fund by virtue of its indicative asset allocation and dynamic rebalancing is expected to less volatile than their Dynamic Fund.
However, the multi-asset fund cannot be used for short-term goals. All its asset classes, including medium-term bonds are too volatile for that. It can only be used for 10 years plus goals. For such a tenure, a bit more volatility and tax efficiency of their own dynamic fund would be a relatively better choice.
Thus the Motilal Oswal Multi-Asset Fund does not satisfy any particular requirement of an investor and can be safely avoided. A reader had asked if this fund can be a substitute for a permanent portfolio. See: This portfolio works in all market conditions! Will you invest? The answer is no. A permanent portfolio by definition has a permanent asset allocation and does require any kind of tactical rebalancing as done in both hybrid funds mentioned above.
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