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Product crack: Mirae Asset Prudence Fund

It is a hybrid scheme that will invest 65-80% in equities and the rest in debt

Mirae Asset Global Investments (India) Pvt. Ltd has launched a new scheme called the Mirae Asset Prudence Fund (MAPF).

It is a hybrid scheme that will invest 65-80% in equities and the rest in debt. Of its equity allocation, it will invest 65-100% in large-sized companies and the rest in mid- and small-caps. MAPF defines a large-sized company as one that’s among the 100 largest companies by market capitalization. The debt component will be managed conservatively, where a chunk of its assets will be invested in government securities and AAA-rated scrips of government–owned and private sector companies.

WHAT WORKS...

Although Mirae Asset is a small fund house, it packs in quite a punch. Its equity schemes have delivered good returns across all time periods. This scheme is a conservative one, both in terms of asset allocation across equity and debt, and the type of securities it will invest in. Large-cap companies will ensure that MAPF’s volatility is in check, though the fund can maximize its allocation to mid-cap companies to generate the returns kicker. And by investing in government securities and AAA-rated scrips, MAPF will keep credit risk to a minimum. The fund will follow more of a duration strategy (looking to capitalize on interest rate movements) than accrual strategy (using credit ratings as a means to generate returns kicker).

...WHAT DOESN’T

MAPF is a new fund and, therefore, lacks a track record. There are many balanced funds in the industry that come with a 65-35% equity-debt mix and have healthy track records. So, to that extent, MAPF does not have anything new to offer. But what could set it apart is the fund house’s track record in managing equity funds. And this will depend on the current fund management team’s continuity.

WHAT SHOULD YOU DO?

The fund is not allowed to call itself a balanced fund, despite scores of existing funds with a similar asset allocation strategy that go by that name. The Securities and Exchange Board of India (Sebi) mandates that if a fund house intends to launch a balanced fund, it should limit its equity exposure to around 50%. Sebi has stopped giving approvals to new balanced funds until they meet this new criteria. So the new age balanced funds, therefore, invest about 50% in equities, some portion in arbitrage opportunities and the rest in fixed income.

MAPF is to be treated like a conservative equity-oriented fund. As it will invest at least 65% in equities, it will be treated like an equity scheme for taxation purposes. Though we don’t think future performance would be an issue, it’s better to consider existing balanced funds or pure large-cap schemes for now. Wait for MAPF to show some performance before considering it.

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