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HDFC Mutual Fund has launched HDFC Asset Allocator Fund of Funds, an open-ended Fund of Funds scheme investing in equity-oriented, debt-oriented, and gold ETFs schemes. The NFO is open from April 16 and will close on April 30. The fund aims to distribute investible surplus across various asset classes according to risk tolerance, risk appetite, and investment time frame. Historically, gold and equity performed better than debt in terms of returns, while debt had the lowest volatility. To capture the benefits of both worlds, the fund will approach with a systematic & process-driven approach to asset allocation. To know more, read on.

Why asset allocation

Each asset class behaves differently across different economic cycles. With an asset allocation approach towards portfolio, you can reduce dependency on a single asset class to generate returns. Also, you can mitigate volatility of portfolio returns.

Asset allocation funds have existed many years. These funds fall in the hybrid category. There are two subcategories that engage in asset allocation: multi asset allocation and dynamic asset allocation.

HDFC Asset Allocator Fund of Funds

HDFC Asset Allocator Fund of Funds will aim to have exposure in Equity, Debt and Gold.

This will be done by 40-80 percent exposure to Equity, with the majority of money going to Large Cap, Mid Cap, Small-cap and Flexi Cap categories of MF schemes.

There will be 10-50 per cent exposure to Debt. And, there will be 10-30 per cent exposure to Gold through Gold ETFs.

As you can, the HDFC Asset Allocator Fund of Funds will have exposure to all the 3 asset class.

Amit Ganatra will manage the Equity portion, Anil Bamboli will manage Debt portion and Krishan Kumar Daga will manage the Gold portion.

In the recent past, we have seen Motilal Oswal Asset Allocation Passive FoF, Nippon India Asset Allocator, Quantum Multi Asset FoF etc. being launched.

HDFC Asset Allocator Fund of Funds will decide the equity allocation based on a model. The model will indicate the percentage of equity allocation on the basis of back testing results. Portfolio will be rebalanced on a monthly basis.

For the debt allocation, there will be 75-100 percent duration and 0-25 percent sectoral/thematic. The idea is to invest, predominantly, in schemes with exposure, mostly, to issuers with high credit quality. Generally, debt portfolio duration would be in the range of 1- 3 years. However, in case the interest rates are very low or very high in the judgment of the fund manager, then the duration may be beyond this range.

Final thoughts

HDFC Asset Allocator Fund of Funds is another solution for investors seeking an end to their asset allocation woes.

As you know, timing the market for various asset classes is difficult. Lack of diversification leads to higher volatility of returns. Combining negatively correlated/ less correlated asset classes reduces portfolio risk. In this backdrop, one could consider HDFC Asset Allocator Fund of Funds as an option to meet diversified asset allocation needs of investors.

The fund will seek to do active asset allocation, with periodic review and rebalancing. Your profits from the fund will undergo debt taxation with indexation benefits.

The fund’s benchmark is 90% NIFTY 50 Hybrid Composite Debt 65:35 TR Index + 10% Domestic Price of Gold arrived at based on London Bullion Market Association’s (LBMA) AM fixing price.

Exit load kicks in if you exit more than 15 percent of your investments within 1 year.