Bandhan Multi Asset Allocation NFO: Combined power of 5 asset classes

Bandhan Mutual Fund is launching a hybrid fund new fund offer (NFO), Bandhan Multi Asset Allocation Fund. The NFO will open for subscription on 10^th January 2024 and close on 24^th January 2024.

Multi Asset Allocation funds are hybrid mutual fund schemes which invest in 3 or more asset classes. According to SEBI regulations, multi-asset allocation funds must invest a minimum of 10% each in at least 3 asset classes. Apart from the two most popular asset classes, debt and equity, these schemes invest in asset classes like gold, international equities, real estate investment trusts (REIT), infrastructure investment trusts (InvITs) etc. The fund manager decides the proportional allocation to each asset class based on the market conditions with the objective of balancing risks and returns.

How does multi-asset allocation work?

Different asset classes perform different roles in your portfolio e.g. equity provides capital appreciation, debt provides portfolio stability, gold provides inflation protection etc.

Different asset classes outperform / underperform each other in different market / economic conditions (see the chart below). You can see that debt is much more stable than equity. Gold and equity are usually counter-cyclical to each other i.e. gold outperforms when equity underperforms and vice versa. There is also low correlation of domestic equities and international equities returns.

Combining these asset classes may lead to relativelystable portfolio returns.

Source: National Stock Exchange, MCX, Advisorkhoj Research, as on 31^st December 2023. Nifty 50 TRI is used as a proxy for equity as an asset class, Nifty 10 year benchmark G-Sec Index is used as proxy for debt as an asset class, spot price of Gold (in MCX) is used as proxy for Gold as an asset class and S&P 500 (in INR) is used as a proxy for international equities. Disclaimer: Past performance may or may not be sustained in the future.

Investor behaviour leads to portfolio underperformance

Investors often use past performance to make investment decisions i.e. invest in assets which outperformed and sell / redeem assets which underperformed (see the chart below). While past performance is an “easy to understand” signal, it often leads investors to invest in expensive assets and sell depreciated / inexpensive assets. This leads to portfolio underperformance.

Combining these asset classes may lead to relativelystable portfolio returns.

Source: Bandhan MF, as on 31^st October 2023.

Risk adjusted returns

Multi Asset Allocation strategy has the potential to generate superior risk adjusted returns viz. Nifty like returns with significantly lower volatility (see the table below).

Source: NSE, BBG, Bandhan MF, Data as of 30^th November 2023. LBMA Gold AM Prices and LBMA Silver Prices are used for comparison. Disclaimer: Past performance may or may not be sustained in the future.

Benefits of Multi Asset Allocation Funds

1. Diversification across different asset classes will reduce portfolio risk and provide stability in different market scenarios


2. Multi asset allocation funds fostera disciplined approach towards asset allocation, rather than chasing performing asset classes (based on historical return).


3. Automatic portfolio rebalancing will reduce over-exposure to a particular asset class and provide stability of returns through profit booking at higher levels and re-investing in underperforming assets, that too in a tax efficient manner


4. It provides a well rounded portfolio wrapped in a single scheme. You do not have to worry about managing asset allocation and leave it to experts


5. Advantage of equity taxation if average equity allocation during the year is more than 65%. For tax consequences of your investment in these schemes please consult with your financial and tax advisors in order to make informed investment decisions

Bandhan Multi Asset Allocation Fund – Asset Allocation

Bandhan Multi Asset Allocation Fund will invest in domestic equities, international equities, fixed income / debt, commodities (gold and silver) and arbitrage (see the graphic below). The asset allocation of the scheme will ensure equity taxation.

Equity portion

The equity portion of the portfolio will be actively managed using the 3D investment framework:-

• Diversity: Diversification across market cap segments and industry sectors


• Discipline: Limits for Mid and Small cap allocation, rebalanced quarterly


• Dependability: Performance track record, quality management and strong balance sheet

Debt portion

• Active duration management depending on interest rate outlook. In the current interest rate environment, the inclination is to build a high duration debt portfolio


• Allocation across Government Bonds, SDL, Corporate Bonds, and Money Market instruments. Preference for high credit quality in debt portfolio

Commodities portion

The fund will invest in gold and silver ETFs – passively managed commodities portfolio

International equities portion

• The fund will invest in international / overseas ETFs – passively managed international portfolio


• Will aim to cover the US, Developed markets ex US and Emerging Markets

Why invest in Bandhan Multi Asset Allocation Fund?

• Transparent investment approach. Investors will have a clear understanding of how funds are allocated to different asset classes


• Disciplined investment approach with no personal biases can bring consistency in performance over sufficiently long investment horizons


• Potential of generating superior risk adjusted returns


• Benefits of equity taxation

Who should invest in Bandhan Multi Asset Allocation Fund?

• Investors looking for a long-term strategic allocation to different asset classes


• Investors looking for relatively stable returns with low downside risks


• Investors with high to very high risk appetites


• Investors with long investment tenures. We recommend minimum 3 years investment tenures for this scheme.


• Investors should consult with their financial advisors or mutual fund distributors if Bandhan Multi Asset Allocation Fund is suitable for their investment needs.