Chintan Haria Head- Product Development & Strategy ICICI Prudential Asset Management Company Limited joined IPAMC in October 2005. He anchors Product Development and Strategy at ICICI Prudential AMC, where he is responsible for driving new and existing products and working closely with the respective teams to augment business growth. Chintan joined IPRUAMC as a management trainee in the investments team as part of the Equity & Derivatives Trading Desk. He went on to become lead analyst for Oil & Gas Sector while he successfully managed portfolios including ICICI Prudential Arbitrage Fund, ICICI Prudential Long Term Equity Fund (Tax Fund), ICICI Prudential Childcare Gift, ICICI Prudential Equity Savings Fund.
The global equity markets saw huge gains post the pandemic. The last two years looks like a distant dream now for an investor as the markets have started correcting. Indian equity market on a year-to-date basis is down over 10% and the near term outlook looks uncertain. Some of the factors which could cause market volatility include rising crude oil prices, aggressive monetary tightening and interest rate hikes by global central banks, a stickier inflation profile on the back of supply-side disruption and uncertainty around ongoing Russia-Ukraine war. As a result, it may be a challenging phase for an investor who is new to investing.
Given the uncertain times, we believe the road ahead calls for prudent investment strategies and it begins with adhering to asset allocation. Every asset class – equity, debt, gold, international equities – has a distinct role to play in a portfolio. Historical performance data of various asset classes show that winning asset class keeps changing every other year. While equity market tends to generally perform well in expansionary economies, debt tends to generally perform well in contracting economies. Another asset class – gold – acts as a good hedge against inflation and so cannot be ignored from the portfolio mix. So, the key is in putting together a portfolio which has optimal asset allocation to meet one’s requirement.
But this is no easy task. While managing one’s portfolio, an investor faces several challenges in the form of one’s own behavioural biases, identifying the right asset class for investment, inability to decide when to enter or exit a particular asset class, how much one can allocate in a particular strategy etc. As a means to address these challenges which a lay investor faces, there is a variety of product offerings both on the active and passive side of offerings.
Passively Managed Asset Allocation Option
A passively managed asset allocation scheme is the one where the underlying will consist of ETF and index funds from across asset classes. One such example is the ICICI Prudential Passive Multi Asset Fund of Fund. This scheme provides investors a blend of all asset classes wherein 25-65 per cent will be invested in domestic equity ETFs and index funds, another 25-65 per cent in debt ETFs and index funds, 0-15 per cent in gold ETFs and 10-30 per cent in global equity ETFs and index funds.
Within the Equity (Domestic) universe, the fund has the flexibility to invest in market cap based ETF, sector or theme based ETFs and factor based ETFs. For international allocation, the fund has the option to choose from 30 well researched global ETFs that invest across globe/country specific & theme specific ETFs. The Scheme is also capable to invest in any ETFs/ Index Fund launched by any other mutual fund in India. In effect, an investor can achieve optimal portfolio diversification due to its allocation to several asset classes and geographical diversification due to its exposure to international equities.
Although the fund invests in passive instruments, the fund manager here has an active involvement in identifying asset class and mix. Moreover, tactical calls taken by the fund manager from time to time is likely to help generate better risk adjusted returns in the long run.
Also, the scheme is both cost and tax effective. Since this is a fund of fund, the expense is capped at 1%. Whenever the fund is rebalanced, the investor need not worry about any tax implication. For taxation purpose, fund of fund is treated as a debt fund.
To sum up, the scheme combines the ease of investing with the help of skilled fund managers who are always looking for ways to make the portfolio perform better. Given its exposure to diverse asset classes, the scheme is a one-stop low-cost investment for investors looking at asset-allocation based solutions.