Investors must switch to Quantum Multi Asset Fund

Investors in multi asset funds and balanced funds must be shaken and stirred.

The multi asset funds and balanced funds are supposed to protect your capital on the downside but, instead, the multi asset funds and balanced funds with your savings in them, have experienced capital erosion and are behaving like equity funds! They are sinking and decimating your capital. This should come as a shock to the luckless investors who trusted their assets and assumed they were "safe" in these multi-asset or balanced funds. A multi-asset fund is supposed to own atleast 10% in the 3 major asset classes (equity, debt, and gold) while a balanced fund has the ability to be 0% to 100% in any asset class.

Table 1: Drunk from excess equity allocations Balance funds decimate investor wealth

Index / Balanced Fund	AuM of the Fund as of March 30, 2020 (Rs crore)	Return (%) Period Jan 1, 2020 to March 31, 2020	Return (%) Period from peak to trough; Jan 14, 2020 to March 23, 2020
BSE 30 Index	Na	-28.44	-37.91
Quantum Multi Asset Fund	16.2	-8.18	-13.79
ICICI Pru Multi Asset Fund	9,022.6	-24.07	-30.52
HDFC Multi Asset Fund	198.1	-18.48	-26.10
ICICI Pru Balanced Advantage Fund	22,849.1	-19.83	-26.79
HDFC Balanced Advantage Fund	32,369.0	-25.71	-33.33
HDFC Top 100 Fund (Equity Fund)	12,945.8	-31.29	-39.42

Note: Returns less than a year are in absolute terms; Quantum Multi Asset Fund's (Direct Plan) inception: July 11, 2012; Source; Bloomberg, ACE MF

The reason why the large multi asset and balanced funds have decimated investor wealth is because they were really equity funds in disguise. With a desire to be treated as an equity fund for the purpose of capital gains, the fund managers made the convenient decision to hold atleast 65% of equity in their portfolio at any point in time. This gave them the "advantage" of telling investors that the multi and balanced funds (of HDFC and ICICI in the example above) would have a favourable tax treatment. A fact! This tax-positioning made it easier to sell these funds to investors.

Fueled on a high octane allocation to equity, these "balanced" and "multi-asset" funds roared ahead - leaving the Quantum Multi Asset Fund (a competitor to any multi-asset and balanced fund and which can have an equity allocation between 25% and 65%) looking like a donkey running against a pack of pedigree race-horses.

For example, from the time Prime Minister Modi won the elections in May, 2014 till the peak of the market, the Quantum Multi Asset Fund was up "only" +57.96% while ICICI Multi Asset was up +83.66% and the other giant HDFC Balanced Advantage Fund was up +86% overshadowing the pygmy-ish returns of the Quantum Multi Asset Fund (see Table 2). However, if you measure the returns from Modi 1.0 of May, 2014 to the recent trough of the market on March 23, 2020 then the Quantum Multi Asset Fund outshone the competition.

The point, though, is not the fact that returns are lower or higher - but that the objective of the investor who invests in a multi-asset or balanced fund is not being met. The funds with a capital gains tax-driven 65% minimum equity allocation are being imprudent with investors' money that seeks prudence and safety on the downside.

Table 2: From Modi 1.0 to trough and Modi 1.0 to peak!

Index / Balanced Fund	Total Return (%) Period May 16, 2014 to March 23, 2020	Total Return (%) Period May 16. 2014 to January 14, 2020
BSE 30 Index	+16.74	+88.02
Quantum Multi Asset Fund	+36.18	+57.96
ICICI Pru Multi Asset Fund	+27.60	+83.66
HDFC Multi Asset Fund	+15.58	+56.40
ICICI Pru Balanced Advantage Fund	+33.90	+82.90
HDFC Balanced Advantage Fund	+24.03	+86.03
HDFC Top 100 Fund (Equity Fund)	+7.35	+77.20

Returns less than a year are in absolute terms, while over year are compounded annualised
Quantum Multi Asset Fund's (Direct Plan) inception: July 11, 2012
Source: Bloomberg, ACE MF, PersonalFN Research

Creating a product to take advantage of tax rates is a sloppy job and could defeat the very purpose of giving investors the "balance" they seek.

This is not the first time that HDFC, ICICI and other fund houses have had to face this criticism from me. In November 2017 I warned investors that these funds were not designed as truly balanced products. (See Balanced Funds are Unbalanced, November 18, 2017.)

Some of these funds may have gone through a name change due to a SEBI-induced reclassification - but they have not changed the underlying characteristic of being risky and risque sexy equity products disguised as multi-asset or balance funds. They have changed the wrapping paper and inked a new name but they remain unbalanced at the core and unable to provide downside protection.

Stay invested in funds that do not do what they are supposed to do at your own risk.

Or switch over to the Quantum Multi Asset Fund.

NOTE:

As many of you know, I helped found and launch the Quantum Mutual Fund house and made sure that Quantum MF has sensible products with clearly defined research and investment processes which have resulted in products that do what they are supposed to do - and leave the racy stuff for those investors who want to gamble at the horse races!

The Quantum Multi Asset Fund, for example, protects your downside risk when the markets decline and aims to give you a better return than a 3-year or 5-year FD would - that is the objective of a true multi-asset or balanced fund. The performance of the BSE-30 Index is not the relevant benchmark for a multi asset fund or a balanced fund!

Table 3: Simple pocket-book guide to where to invest your savings

Where the money is	Where it could be	Instrument / Products to consider
Money at home	Leave it there, I may need money on a day when the bank is closed or the ATM has run out of notes	In many denominations, just in case...
FD - from 1 month to 3 years	I need the money for a known reason and do not wish to take any chances! Return is not my objective, safety is my only objective.	PSU Banks and maybe very short term Liquid Funds which invest only in government and PSU-securities; they should not invest in private sector companies
FD - 3 year and more	I need the safety but since the rates of FD are low, I am willing to take very little risk to try and get a better return than the FDs over this longer time frame of 3 years and more	A true Multi-Asset or Balanced fund like QMAF, not what you are being made to buy! See Tables 1 and 2 above to remind yourself why there is little protection when stock markets decline from the balanced funds you may own; you did not buy the balance fund for a tax break! You bought it for safety!
Money I need to invest for a very long term need like buying a home, a marriage, children, education...or just to get rich!	The best asset class for the long run! It has risk. There can be years when stocks lose you money but, over very long time periods, if you make some sensible choices you are likely to make money and be more than compensated for the risks of being in equity	Many equity funds that fit this profile; but there are some that do not: do your homework! However, if you want a quick solution here are 2 to consider in a 10% to 90% mix: 1. Quantum Long Term Equity Fund, 10% of your allocation to equity mutual funds, and 2. Quantum Equity Fund of Funds, 90% of your allocation to equity mutual funds
Money I need against insurance that society will go nuts; that the world will be in trouble	Need to have gold at home, gold in a locker, and gold in an ETF. The same way you would have money in your wallet, money in your cupboard, and money in your FDs.	Make sure you have gold with the highest purity possible and that your Fund or ETF also maintains that rule; it is the easiest gold to transact. Quantum Gold Savings Fund and Quantum Gold ETF

Disclaimer: I helped create the Quantum range of mutual funds.

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)

	Quantum Long Term Equity Fund, Quantum Equity Fund of Funds, Quantum ESG India Fund	Quantum Gold Savings Fund	Quantum Liquid Fund
Why you should own it:	An investment for the future and an opportunity to profit from the long term economic growth in India	A hedge against a global financial crisis and an "insurance" for your portfolio	Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation	80% in total in both; Maybe 15% in QLTEF, 10% in Q ESG and 75% in QEFOF	20%	Keep aside money to meet your expenses for 12 months to 3 years
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"