Kotak Multi Asset Allocation Fund

The fund combines income and diversification through asset allocation

Summary

Type	Open-ended Debt scheme	Benchmark Index	80% CRISIL MIP Blended Index and 20% Price of Gold
Min. Investment	Rs 10,000 (Non-SIP Purchase) and Rs 1,000 (SIP Purchase)	Face Value	Rs 10 per unit
Entry Load	Nil	Exit Load *	1.0% *
Issue Opens	December 31, 2010	Issue Closes	January 14, 2011

* An exit load of 1.0% will be charged if redeemed within 1 year from the date of allotment of units.

Investment Objective*

To generate income by investing predominantly in debt and money market securities, to generate growth by taking moderate exposure to equity and equity related instruments and provide diversification by investing in Gold ETFs.

 

There is no assurance or guarantee that the investment objective of the scheme will be achieved.

 

*Source: Scheme Information Document

Is this fund for you?

A Multi Asset Allocation Fund is a type of Hybrid Fund wherein investments are made in different asset classes. Such funds can invest in asset classes like debt & money market instruments, equity & equity related instruments and gold. Exposure to different and least co-related securities offers the benefit of diversification and thus helps in managing the returns during turbulent times.

 

Debt instruments provide the safety and stability of regular income from coupon payments, whereas equities provide the chance to earn an extra income through dividends and capital appreciation over a period of time. However, it is noteworthy that in times of market uncertainty, equities can get very volatile which may negatively affect the overall portfolio returns.

 

However, on the other hand, investment in gold (through Gold ETFs) will improve diversification and hence enhance performance. Gold has a low or negative correlation with most other asset classes, which means that its price changes are independent of price changes in other asset classes like equities and debt. Adding gold provides the fund manager with the flexibility to tilt the allocation made between asset classes so that the fund is positioned to take full advantage of prevailing market conditions.

 

Kotak Multi Asset Allocation Fund (KMAAF) is a hybrid fund which combines fixed income instruments, equity and gold ETFs. Thus KMAAF offers an interesting investment proposition by providing exposure to 3 major asset classes (Debt, Equity and Gold). ‘Investment diversification through multiple asset allocation’, as a concept is not new. This fund is not a first of its kind in this category as funds like Canara Robeco InDiGo, Taurus MIP Advantage, Religare MIP Plus are few to be named which have similar investment style, but with variations in investment propositions. However, this is first fund with multi asset allocation benefit from Kotak Asset Management Company Ltd.

 

Portfolio & Investment Strategy

KMAAF seeks to generate income with least amount of volatility by investing predominantly in debt and money market instruments of high credit quality. It also provides an avenue to generate growth by taking moderate exposure in equity and equity related instruments. Moreover, to adequately diversify the entire portfolio KMAAF also invests a part of the investible money in Gold ETFs as gold has very low or negative co-relation to other asset classes.

 

Instruments	Allocation Range (% to Total Assets)		Risk Profile High/Medium/Low
	Minimum	Maximum
Debt and Money Market Instruments (Scheme will not invest in securitised debt)	75	90	Low to Medium
Equity and Equity Related Instruments	5	20	High
Units of Gold ETFs (Investments will be based on considerations of price, tracking error, performance, portfolio, expense ratio etc.)	5	20	Medium to High

 

The fund manager would invest KMAAF`s assets predominantly in various debt instruments such as Govt. securities, corporate debt, CDs, CPs, CBLO/Repo, term deposits of banks, debentures and money market instruments which have low-to-medium risk profile. (Exposure to debt and money market instruments would be in the range of 75% - 90%). The scheme will invest (5% - 20%) in equity and equity related instruments which are priced at a material discount to their intrinsic value. While determining their intrinsic value which is a function of both past performance and future growth prospects, the fund manager will utilise in-house research along with research available from other resources. In addition to equity, the fund manager will also take a small exposure to gold by investing in Gold ETFs. Exposure to Gold ETFs will be in the range of 5% to 20% of the net assets of the scheme. The scheme may also invest in Kotak Gold ETF, subject to investment restrictions. Investments in Gold ETFs will be made after considering price, tracking error, performance, portfolio, expense ratio, materiality of differences etc. by the fund manager.

 

Benchmark

A custom benchmark which is a blend of the following:

 

CRISIL MIP Blended Index	80%
Price of Gold	20%

Fund Manager Profile

Mr. Abhishek Bisen (for Debt and Gold ETF segment) is a Bachelor of Arts and also holds an MBA degree with specialization in Finance. Prior to joining Kotak Asset Management Company Ltd., Abhishek was associated with Securities Trading Corporation of India Ltd where he was associated with Sales & Trading of Fixed Income Products apart from doing Portfolio Advisory. His earlier assignments also include 2 years of merchant banking experience.

 

Mr. Pankaj Tibrewal (for Equity segment) is a Graduate in Commerce from St. Xavier's College, Kolkata and holds Masters Degree in Finance from Manchester University. He has over 6 years of experience in fund management area. Prior to joining Kotak Asset Management he was in the fund management team of Principal PNB Asset Management Private Ltd.

Fund Outlook

Given the funds positioning as debt fund with multi-asset diversification, KMAAF’s investment across different asset classes with low correlation brings in distinctly different risk/return characteristics. With major exposure towards debt, KMAAF’s performance will be closely linked to the movement in fixed income instruments, while its exposure to gold and equity will help provide additional returns to its investors. Gold being negatively correlated to other asset class like equity and debt, the fund is built to perform across varying market conditions. KMAAF’s performance in turn, will mirror the combined performance of debt, gold and equity.

 

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