HDFC AMC is launching an NFO, which is set to open for subscription from April 16th, 2021 and closes on April 30th, 2021.

Investment Objective: To seek capital appreciation by managing the asset allocation between equity oriented, debt oriented and gold ETF schemes.

Investment Strategy: The fund invests in a portfolio of debt, equity and gold funds. The focus is to create better risk adjusted returns by investing in low correlated or negatively correlated assets. It is a fund of funds and will invest in existing equity, debt and gold funds of HDFC AMC.

Fund Manager: Mr. Amit Ganatra, Mr Anil Bamboli, Mr Krishan Kumar Daga

Benchmark: 90% Nifty 50 Hybrid Composite Debt 65:35 + 10% Domestic Price of Gold

Minimum Lump Sum Investment Amount: Rs 5,000

Minimum SIP Investment Amount: Rs 500

Fund Management Process:

  1. The fund will consider factors like Price-Earning Ratio, Earnings Yield and G-Sec Yield to determine the equity and debt allocation.
  2. The portfolio will be constructed based on the below limits:
  • Equity Oriented Schemes (40%-80%)
  • Debt Oriented Schemes (10%-50%)
  • Gold ETF Schemes (10%-30%)

3.  75-100% of the equity portfolio will be invested in core funds like large, mid, small or flexi. 0-25% can be invested in tactical strategies like thematic funds.

4. The asset allocation model will be reviewed and rebalanced on a monthly basis Based on our analysis, we have observed the following pros and cons

Pros:

  1. Diversification across asset classes
  2. Minimises overall portfolio risk and volatility.
  3. One stop shop for all asset classes. No need to select funds in each category
  4. Periodic rebalancing without tax implications for the end investor. Taxes only have to paid at the time of redemption

Cons:

  1. Long term returns most likely lower than a pure equity fund
  2. Concentration risk since all underlying investments are in HDFC AMC funds
  3. Added cost as opposed to individually investing in the underlying schemes
  4. Fund will be under debt fund taxation - taxed at slab rate for investment less than 3 years and 20% with indexation more than 3 years. Higher tax outlay than equity schemes

The fund has a semi-quant driven model which decides the allocation across different asset classes. Asset allocation is done based on market valuations and interest rate expectations in the market. An asset allocated portfolio reduces volatility during market downturns but at the same time tends to deliver lesser than a pure equity fund in a 5-7 year period.

Investors can consider allocating a small amount of their portfolio towards this fund if they are want a diversified portfolio which is periodically rebalanced. It is of utmost importance that the fund should be discussed with your financial advisor and then ascertain whether it is suitable to invest. Always read the scheme documents fully before investing.