Edelweiss and WhiteOak launch multi-asset allocation funds | Value Research These funds continue to receive indexation benefits

Edelweiss and WhiteOak launch multi-asset allocation funds

These funds continue to receive indexation benefits

Edelweiss and WhiteOak launch multi-asset allocation funds

With debt funds recently losing their indexation benefits, where investors paid lower taxes in the long run, AMCs (mutual fund houses) are now scrambling for new alternatives to attract risk-averse investors.

They have found multi-asset funds to be one such fix.

And the boom is apparent, with Edelweiss just announcing the NFO (new fund offer) of their multi-asset fund. A few weeks ago, WhiteOak Capital launched a similar scheme.

The reason is simple: these funds continue to receive indexation benefits, despite the recently-revised tax structure.

For those new to the term, multi-asset allocation funds are hybrid funds that invest in at least three asset classes with a minimum allocation of at least 10 per cent in each asset class. Typically, such funds invest in equity, debt, and commodities (silver or gold).

What has changed
On April 1 this year, taxation for debt funds changed.

Earlier, short-term (less than three years) capital gains were added to the income and taxed as per the investor's income slab. On the other hand, long-term (more than three years) capital gains were taxable at 20 per cent after indexation.

In the new structure, investments with equity exposure of more than 35 per cent and less than 65 per cent will continue to get indexation benefits of 20 per cent for holdings for more than three years. However, debt instruments will not receive these benefits.

How have fund houses responded
Fund houses have responded by creating a fund, which will be a fixed-income scheme. It will get indexation benefits as the equity and commodity portions will be arbitraged.

For instance, Edelweiss Mutual Fund's multi-asset allocation fund will have 35-40 per cent in equity arbitrage, 10-15 per cent in gold and silver arbitrage, and the remaining 45-55 per cent in fixed income. There will be no open exposure in equity as well as gold and silver, meaning there will be no stocks or units of commodities in their portfolio.

Similarly, the WhiteOak multi-asset allocation funds use arbitrage for their equity portion.

For those of you who might be curious, arbitrage is a trading strategy where fund managers generate returns by simultaneously buying and selling securities in different stock markets to take advantage of price differences.

Edelweiss and WhiteOak launch multi-asset allocation funds

Our take

The long-term returns generated by the multi-asset allocation funds are not encouraging.

In the last ten years, this category of funds has given average returns of 10.48 per cent. Even for the five-year period, the returns have not been any different.

Also, these funds have reasonable exposure to gold and silver, and we generally advise investors to stay away from commodities.

Instead, investors should continue to look at the aggressive hybrid category of funds with exposure to both equity and debt. This will allow you to gain better returns over longer periods of time.

Suggested read: Should you invest a lump sum in aggressive hybrid funds?

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