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What is your medium-term outlook on equity markets?
Indian markets have come back to all-time highs and valuations have expanded to the fair-value zone. So, while there is some exuberance in the near term, on a longer-term basis, valuations are not stretched. In fact, India's market cap share to the world market cap is 3.30%, which is almost similar to its share to world GDP.
While near-term uncertainty induces volatility in asset prices, in the long run, wealth creation in equities is a function of how businesses profitably grow over their cost of capital sustainably.
Given the long range of reforms introduced, we believe the medium to longer-term prospects of Indian equities is quite encouraging and we would advise investors to benefit from volatility as it manifests.
Time in the market is more important than timing the market. Recently, market volatility has moved up and investors can benefit from this by focusing on disciplined investing and asset allocation.
We all have been hearing about the importance of asset allocation for years. But it is easier said than done for many MFDs. Can you share three practical tips to practice asset allocation?
Three practical tips include:
1. Understand goals and risk - Clearly define your financial objectives and investment time horizons and determine how much market fluctuation you're comfortable with. Ensure your allocation aligns with this.
2. Regularly rebalance - Adjust your portfolio at set intervals (for example, annually) or when deviations from target allocations surpass a certain threshold (for example, 5%).
3. Stay informed and adjust - Modify your allocation in response to significant personal events or long-term market shifts and stay updated on global trends as well as potential investment opportunities.
What is the rationale for launching Kotak Multi Asset Allocation Fund? Why are you optimistic about multi asset funds?
Most of us are multi-tasking in life, on both, professional and personal fronts. When it comes to investments, no single asset consistently outperforms in every market scenario. Therefore, we need a fund that multi tasks by diversifying across multiple assets and has the flexibility to manoeuvre across assets according to market scenarios. Additionally, the fund would come with the benefit of equity taxation.
In the multi-asset space, our existing fund, the Kotak Multi Asset Allocator Fund of Fund - Dynamic, stands testament to our capability. It has delivered 16x returns in 18 years.
Investors can allocate funds across different asset classes like equity, debt, commodities, etc. Why does it make sense to invest through a multi asset allocation fund?
Firstly, investing across different classes is not tax friendly, secondly, you pay different taxes for different asset classes and thirdly, if you switch between one asset class to another, you are liable to not only pay tax but also comply with operational requirements. Moreover, you will have to track these asset classes at all times.
However, in a multi asset fund, the fund manager takes care of the asset allocation by appropriately investing across asset classes like large cap, mid cap and small cap while managing duration and credit risks from a fixed income perspective. He also takes exposure to commodities, REITs, InVits and international equities based on tactical opportunities.
Investors cannot achieve this individually and hence, investing in multi asset funds makes sense. Notably, they continue to get equity taxation for the entire investment.
Every fund has a certain role in investors' lives. For instance: A flexi cap fund is good for long term goals like retirement or liquid funds can be used to create an emergency corpus. In your view, where do multi asset funds fit into clients’ portfolios?
A multi asset allocation fund is ideal for every investor's core portfolio and aims at generating potentially higher risk-adjusted returns.
It is also suitable for first-time investors, looking at long term capital growth. Additionally, a multi asset allocation fund creates a hassle-free experience by providing professional asset allocation through the collective expertise of fund management across asset classes.
There are a few multi asset funds in the markets with an established track record. In such a scenario, why should MFDs shortlist your multi asset fund for their clients?
As shared earlier, investors have had a favourable experience in Kotak Multi Asset FOF-Dynamic. The upcoming Kotak Multi Asset Allocation Fund will be managed by similar expertise. It will simply follow the ‘Buy Low, Sell High’ mantra i.e. buy when market valuations look cheap and sell when valuations are expensive.
Why should distributors recommend Kotak Multi Asset Allocation Fund?
You must have heard about the 80-20 Pareto principle. Distributors can apply this to their business i.e. Kotak Multi Asset Allocation Fund can cater to 80% of clients who generate 20% of revenue. This will allow distributors to spend more time on the remaining 20% of clients who generate 80% of revenue.
Greed, fear, lack of time, and operational challenges make the task of asset allocation difficult even for seasoned and knowledgeable investors. Therefore, we call this our 'Load It, Latch It, Forget It' fund, wherein the fund manager will strive to achieve optimized asset allocation by considering valuations and expected risk-adjusted returns.
Kotak Multi Asset Allocation Fund aims to convert traditional investors into mutual fund investors. It is a 'One-Size-Fits-All' solution, suitable for lumpsum and SIP investments.
