Just saw this. I’m excited about these kinds of funds due to the auto-rebalance feature, which takes the headache away from individual investors and helps avoid taxation as well.
I thought Zerodha Fund House would release a presentation detailing the returns, drawdown comparisons, etc. I’m expecting this fund to have a 10–12% drawdown when the Nifty crashes 30–40%.
However, I’m a bit disappointed with the choice of index. It seems as though ZFH is trying to pick and choose a novel index every time. They already have Nifty 100 and Midcap 150 ETFs, as well as the LM250 fund—so choosing the Nifty 200 seems like just another name to add to the list. It feels randomly selected for the sake of differentiation.
If you really have confidence in the LM250, then you should have used that. And if not, then the default should have been the vanilla Nifty 500, which is the actual broad market index. I’m aware that due to market-cap weighting, the Nifty 200 will behave similarly to the Nifty 500, but the choice still feels odd. Over 10-year periods, there’s about a 1% difference in returns—not a huge gap, but still enough that I’d need a compelling reason to opt for an uncommon index like the Nifty 200. So I’m genuinely curious why ZFH chose it.
I’m also interested in the tax angle. A 65% equity allocation would have allowed the fund to be taxed as an equity fund, but ZFH chose 60%, just falling short of the threshold. @VishalJain
Hi, for benchamarks we can use only approved indices by AMFI and so dont have a choice on that. The approved indices were Nifty 200 & Nifty 500 and the reason for chosing the Nifty 200 was that we are taking exposure to only the LargeCap & Midcap segment while the Nifty500 would also have smallcaps and so wouldnt have been appropriate to use. For taxation, this would come under the hybrid category i.e. 2 years LTCG @ 12.5%, less than 2 years would be at slab rate. As per regulations, for any FOF to be classified as equity, 90% of the underlying schemes should be classified as equity and not 65% which is applicable for schemes investing in direct stocks. Hope this clarifies.
Thanks for a quick reply. It’s amazing to directly interact with the CEOs and higher officials of Zerodha.
I hope you guys would be releasing a presentation(like most other fund houses do) which gives the details of the returns/drawdown etc and basically sells the investor on why he should invest in it.
IIUC, since this is a fund of fund, and the benchmark of this FoF aligns with the existing funds being offerred by Zerodha fund house, i believe the investments into this FoF can be used by the fund house to purchase/hold units of the other funds/ETFs they already offer. Thus, improving the AUM/volumes/liqudity of the other funds on offer by Zerodha fund house.
I have been waiting for a long time for this kind of passive product. All my investments are in hybrid products like actively managed DAA and MAF. This is a good passive addition.
The NFO is Live now but does not talk about how the assets are going to be rebalanced - such as quarterly or on 5% deviation etc
It only talks about passive breach rebalance in 30 days. Also it seems the fund manager may take a call on investments based on market conditions.
It looks like actual proportion may vary. Given its debt oriented hybrid (in the 12.5% tax post 2 years) I don’t understand why min Equity is 50%. It can be as low as 35%
Also it seems debt ETF has both the 8 to 13 and also the 5 yr so based on interest rate outlook it may be actively managed.
In general it seems to have certain active management in terms of asset allocation based on fund manager outlook.
Yeah I’m a little surprised too. Some things I don’t get -
It was supposed to be Nifty200 but it’s Nifty 100+Midcap 150. In Nifty 200, the 101st stock would have very little weightage as compared to Nifty 100+Midcap150. (I would personally prefer Nifty100+Midcap 150 combo as they have decided but I’m confused why the benchmark is Nifty 200)
There’s no presentation or backtest available like it’s available on other fund pages. I would like to see how this fund would have done over various years as compared to pure Nifty. Also it’s graph and drawdown. I guess it will be added in some time?
I would also like clarity on revalancing frequency and whether it’s totally fixed or any discretionary elements.
Hey thanks for your kind words. Objective here is to manage it passively taking exposure close to LargeCap100 - 30%, Midcap150 - 30%, Gold - 25% and GSec (8-13 Yr) - 15%. Rebalancing bands would be around 5%. You could also refer to our website Zerodha Multi-Asset Passive FoF | Invest in NFO
I am 0% equity for few years now on pledged funds. This might get me above 0 once its pledgable.
Hopefully this is liquid and doesn’t trade at bad prices.
Hey, being a passive fund house we do not give any views. However, keeping in mind that the correlation of Gold with Equity is low, inclusion of Gold in your portfolio would help in reducing risk.
Hi, for benchmarks we can use only approved indices by AMFI which are the Nifty 200 & Nifty 500 and the reason for choosing the Nifty 200 was that we are taking exposure to only the LargeCap & Midcap segment while the Nifty500 would also have smallcaps and so wouldn’t have been appropriate to use. Fund details available here, Zerodha Multi-Asset Passive FoF | Invest in NFO
We will try and provide additional details on the model in a few days, the NFO is open till Aug 8th.
I have some funds in the ICICI multi asset FOF. Its gold exposure is low but provided 12% average return over the last 10 years with slightly less std. deviation than an equal weighted debt-equity-gold portfolio. Less headache to manage too.
Thanks Vishal. Your SID talks about Note: Please refer to the SID for the Asset allocation pattern of the Scheme which is 50% - 70% in Domestic Equity ETFs/Index Funds, 10% - 20% in Domestic Debt ETFs/Index Funds, 20% - 30% in Commodity ETFs & 0% - 5% in Debt Securities and Money Market Instruments.
Hi @VishalJain - It seems to me there is some amount of active asset allocation. unless you setup an algo to track breaches in allocationa and auto rebal. i don’t know how FOF in passive really works - fully algo driven or human input to rebal.
