Good long-term investing outcomes require one to ensure survival first. And this is tough- given how most investors react emotionally when market hit peaks by investing more or when markets go down, many end up exiting, even when they didn’t need the money.
Survival requires structure. And building a strong structure requires a mix of different materials, each bringing different virtues to the table. Similarly, investors seeking to build a robust portfolio need a blend of diverse asset classes, to help them stand firm against the vagaries of the market.
DSP Mutual Fund announced the launch of DSP Multi Asset Allocation Fund (DSP MAAF), an open-ended scheme that aims to offer investors long-term returns like what equities may offer but with added resilience against market falls. DSP MAAF aims to benefit investors by diversifying their investments between asset classes like domestic equities, international stocks, debt instruments, gold ETFs, other commodities and ETF & Exchange Traded Commodity Derivatives (ETCDs), aiming to reduce overall risk.
Historical data has repeatedly shown that the best-performing asset class can vary significantly over the years, making it difficult to predict the winner each year. Hence one’s best bet is to invest across asset classes. DSP MAAF will allocate assets based on 3 key but simple factors – long-term expected returns from different asset classes, their realized volatility and the correlation among each asset class. The key idea is that when assets with low correlation among one another are added into a portfolio, even if one asset class faces a downturn, another one might perform well, potentially smoothening out the investor experience. Further, historical returns of a multi asset model portfolio have shown returns similar to those from domestic equities with significantly lesser volatility than equities.
DSP MAAF can invest between 35-80% in equities, of which up to 50% can be in international equities. It can also invest 10-50% in debt, 10-50% in Gold ETF, 0-20% in other commodities through ETFs & ETCDs and up to 10% in REITs & InvITs.
Long-term investors will also get benefit of indexation when it comes to capital gains taxation, as applicable to Debt schemes. If investors consider a minimum three-year allocation to such a fund, then historical data indicates that after considering the benefit of indexation, debt or equity taxation does not cause material difference on the net returns in hands of the investor.
The New Fund Offer for DSP MAAF will open for subscription on September 7th, 2023 and will close on September 21st, 2023.
“The most underrated factor in investing is time. Once investors devote time, compounding follows. However, temporary price fluctuations distract most of us from staying invested. Hence, we want to offer a solution which reduces fluctuations by increasing the number of asset classes. Our multi asset fund adds global stocks, precious metals & bonds to Indian equities, thus enabling investors to take advantage of cycles of each of these and eventually stay invested in the fund for longer due to lower fluctuations as against a single asset class,” says Kalpen Parekh, MD & CEO, DSP Mutual Fund.
