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Axis All Seasons Debt Fund of Funds- Worthy for All Investment Seasons?
Jan 14, 2020

Ever since the debt fund fiascos, investors have become cautious of where they put their hard-earned money. With the current economic state and lower risk investments options (Debt funds) eroding wealth, choosing the right fund has become the penultimate step to growing wealth.

Hence Axis Mutual Fund rings in the New Year 2020 with the launch of Axis All Seasons Debt Fund of Funds(AASDFOF). It is an open-ended scheme that will invest in debt mutual fund schemes of same fund house or different fund house for medium term.

What is a Fund of fund (FOF)?

As per regulations, a Fund of fund is a scheme that will invest a minimum 95% of total assets of the scheme in the underlying fund/s. A FOF is a unique investment proposition because it is a mutual fund scheme that invests in schemes of other mutual funds offering a well-diversified product to reduce the volatility involved.

This modus operandi allows investors to hold a single product rather than direct investing in various regular mutual fund schemes, to provide optimum returns from a portfolio of well researched funds.

AASDFOF will invest in units of debt-oriented mutual fund schemes, offer benefits of diversification across a fixed income asset class, within the prescribed limits, and decent returns to investors

Therefore, it is suitable for all investors, specially novice investors, looking to park their money for an investment time horizon of medium term.

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Table 1: Details of Axis All Seasons Debt Fund of Funds

Type An open-ended fund of funds scheme investing in debt oriented mutual fund schemes. Category Fund of funds
Investment Objective To generate optimal returns over medium term by investing primarily in debt oriented mutual fund schemes.
However, there can be no assurance that the investment objective of the Scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 1,000 per unit
Plans 
  • Direct*
  • Regular
* Default option
Options
  • Growth*
  • Dividend
    • Re-investment*
    • Pay-out
* Default option
Entry Load Not Applicable Exit Load If redeemed / switched-out within 12 months from the date of allotment:
  • - For 10% of investment: Nil
  • - For remaining investment: 1%.

If redeemed/switched out after 12 months from the date of allotment: Nil
Fund Manager Mr R. Sivakumar Benchmark Index NIFTY Composite Debt Index
Issue Opens January 10, 2020 Issue Closes: January 24, 2020
(Source: Scheme Information Document)

How will the Axis All Seasons Debt Fund of Funds allocate its assets?

Under normal circumstances, the scheme's asset allocation pattern will be as under:

Table 2: AASDFoF's Asset Allocation

Instruments Indicative Allocation (% of Total Assets) Risk Profile
Minimum Maximum High/ Medium/Low
Units of debt oriented mutual fund schemes 95 100 Medium
Money Market instruments 0 5 Low
(Source: Scheme Information Document)

What will the Investment Strategy be?

To achieve the investment objective of the scheme, Axis All Seasons Debt Fund of Funds may invest in units of debt-oriented mutual fund schemes of Axis Mutual Fund or any other Mutual Fund in conformity with the investment objective of the Scheme.

Axis All Seasons Debt Fund of Funds is designed to help investors create a basket of funds which are rebalanced on a periodical basis to achieve benefits of diversification across schemes within fixed income asset class. Scheme(s) will be allocated across the basket of debt schemes, depending on the fund manager's view on fixed income market.

Interest rates move in cycles. While investors gain during times of declining interest rates as bond prices rise, the inverse is true in a rising interest rate environment. The investment objective of the Scheme is to optimize returns to the investor by designing a portfolio that will track interest rate movements and credit cycle by investing in the units of debt-oriented schemes.

Who will manage the Axis All Seasons Debt Fund of Funds?

Mr R. Sivakumar would be the designated Fund Manager of the Scheme.

Mr R. Sivakumar holds a B. Tech degree from IIT Madras and PGDM from IIM, Ahmedabad. He has a tremendous work experience of fixed income research.

Currently, he is the Head of Fixed Income & Products at Axis Asset Management Co. Ltd. He has been associated with Axis Asset Management from September 2010. Prior to joining Axis AMC, he has worked with Fortis Investment Management (India) Pvt. Ltd. (previously known as ABN AMRO Asset Management) as a Chief Operating Officer. Some of the previous companies he has worked as a Fund Manager include Sundaram Asset Management Company Ltd besides Fortis Investment Management (India) Pvt. Ltd and worked as a Research Analyst at Zurich Asset Management (India) Private Ltd.

Some of the other Debt schemes he manages are Axis Dynamic Bond Fund, Axis Children's Gift Fund, Axis Triple Advantage Fund, Axis Dynamic Equity Fund, Axis Equity Saver Fund, and Axis Equity Hybrid Fund.

The outlook for Axis All Seasons Debt Fund of Funds:

Axis All Season Debt Fund of Fund is launched with the intent to generate optimal returns over medium term by investing primarily in debt-oriented mutual fund schemes from across fund houses to create a basket of debt-oriented schemes.

Hence the performance of the AASDFOF would depend upon the performance of the underlying schemes. Any change in the investment policies or fundamental attributes of the underlying schemes will affect the performance of the Scheme. Besides, investment in the debt schemes will have all the risks associated with the debt markets including price risk, credit risk, and reinvestment risk.

Another noteworthy point is AASDFOF total expense ratio, including weighted average of the total expense ratio levied by the underlying scheme(s), shall not exceed the eligible percent of the daily net assets of the scheme and would be in line with the regulations.

It will be slightly higher compared to the underlying schemes held in the portfolio because a FoF pays the fee at its level as well as on the underlying mutual fund investment schemes in which it is invested in for periodical rebalancing, which could result in higher transaction costs.

So, before you invest in Axis All Seasons Debt Fund of Fund, you need to check whether the investment objectives and the asset allocation are followed and suit your investment objectives as well. Also, you need to be ready to bear the high net expense fee.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

Author: Aditi Murkute

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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