Product Crack: DSP BlackRock Dynamic Asset Allocation Fund

It is a fund of funds (FOF) scheme that splits your investments into equity and debt


Asset allocation is a must for every investor, but do you get confused as to how much to allocate to debt and equity and when? DSP BlackRock Investment Managers Ltd aims to answer that question with its newest scheme on offer. Called DSP BlackRock Dynamic Asset Allocation Fund (DAA), this scheme will switch between equity and debt.

What is it?

It is a fund of funds (FOF) scheme that splits your investments into equity and debt; two funds of equity and two of debt, precisely. The asset allocation is dynamic. It will review almost every week how much money should go into debt and how much into equity. To determine the split levels, it considers few key indicators such as the 10-year government security yield, 1-year government security yield and the price-earnings ratio of CNX Nifty. Putting all of this together in a formula called the yield gap model, DAA can invest between 10% and 90% into equities and the rest in debt. The fund is a passively managed scheme.

What works?

DSP BlackRock has been testing this model’s resilience since January 2000. For all its tests, it compared DAA’s model with the price-earnings ratio way of asset allocation (Templeton’s FT Ratio Dynamic PE Ratio FOF), Nifty (as a proxy for an equity fund) and Crisil Balanced Fund index (as a proxy for a balanced fund). DDA’s strategy beat them all over a period of three, five, seven and 10 years. The model’s consistency was also put to test over a large cluster of 5-year and 3-year time periods during the past 10 years. Here too, DAA outperformed the other strategies.

DAA’s model also appears to have got its asset allocation right because looking back at the past 7-8 years, its allocation towards equities turned out appropriate.

What doesn’t?

So far, there’s very little that goes against this scheme. However, the performance of the underlying schemes is important and here’s where our concern is about the fund house. Its flagship equity schemes haven’t done well of late and have underperformed some of its competitors. Their future performance will have a bearing on DAA. Being an FOF, DAA will be treated like a debt fund for taxation.

Mint Money take

We’re not too happy with some its underlying schemes’ performance over the past three years, but we like its mechanism. The fund house tells us that if the asset allocation is appropriate, choice of funds would have a minimal impact; something it demonstrates by showing the small gap between various combinations of top-performing and bottom-performing schemes that got tested with this model, as against its own schemes, over a long period of time. Do not expect DDA to set the charts on fire, but the model—at least from its rigorous back-testing—appears to be robust. Invest small sums for now.

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