Fund houses are taking the job of investor education seriously. The recently launched portfolio systematic investment plan (SIP) by Reliance Capital Asset Management Ltd is a case in point.
Last year, the assets management company (AMC) had launched an asset allocation tool to help investors understand scheme positioning relative to one another to ascertain risk profile and the right fit for individual asset allocation. The portfolio SIP is an extension of that but is meant for distributors, who will in turn help investors.
How does it work?
Along with the application form, distributors will have to get a questionnaire answered by you, the investor. It will consist of questions the answers to which will aim at establishing your risk profile.
Once that is done, you can choose among four portfolios each having five schemes.
Each portfolio has a specific theme akin to risk profile. For example, the conservative portfolio has more allocation to fixed income funds and is meant for risk averse investors. The allocation to particular asset classes depends on your risk profile. Allocation to gold is 10-20% depending on the portfolio you choose. In case of equity schemes, the market capitalization bias (large- versus mid-cap) is also made clear at the time of selecting funds.
The mix of schemes in a particular portfolio is given in the application form itself but you have the choice to change a scheme.
Go through the investment objective of the schemes in reference to your portfolio before choosing one over the other.
Other than the regular scheme charges, there is no extra cost attached for the facility. You have the flexibility to redeem and switch from schemes as you choose.
The obvious advantage is the emphasis on asset allocation. As a starting point for any investment, you need to establish your financial goals and risk profile, which will help you determine a suitable asset allocation for a long-term portfolio. The portfolio SIP product helps you do this via a questionnaire. So it is really a tool to approach investments in a systematic manner. Moreover, this is a tool for the distributors, so the person selling funds to you is also clued into your asset allocation. Lastly, the details of the questionnaire and risk profile are maintained with the AMC in case you need to refer to it at a later date.
The main drawback is that it limits you to Reliance AMC funds; on your own, you can build a portfolio with funds of multiple fund houses. Diversifying across fund houses helps in mitigating the risk that comes with a particular investment style of fund managers of the same AMC.