Buying this FoF? Not worth it

The concept of fund of funds has not really picked up in India in a big way. The biggest reason has been the tax treatment meted out to them. Despite being equity-oriented, fund of funds are treated as debt funds.

In this list of FoFs comes another product launched by Optimix for the high net worth individuals that are clients of Bajaj Capital. Called 'mywrap' account, the product requires a minimum investment of Rs 500,000.

The investment will be made across various asset classes such as Indian and international equities, debt, real estate, commodities and structured products.

It gives investor four options namely, growth, high-capital growth, all equities and liquid plus. Each option is created to cater to different investment profiles and aims to consolidate all investments through single cheque.

What is it?

This offering is essentially a PMS (portfolio management scheme) FoF that will invest in different asset classes through mutual funds. Optimix will manage it. The chief investment officer of Optimix's PMS division, Prashant Narayan, is the fund manager of this scheme.

If an investor opts for the capital growth option, his investments would be made in various asset class in fixed percentages.

However, investments made through this scheme will be done only in mutual funds. The fund has not specified whether the exposure would be taken in diversified equity, thematic or sectoral funds.

Strengths

• Eliminates paperwork and administration of investments becomes easy because investment done through single cheque facility.
• Tax treatment for a PMS-FoF scheme will be at par with its underlying schemes.
• There is no exit load after 18 months. Before that, it is about 0.5-1.5 per cent. There is a management fee of 1.6 per cent and additional expenses of 2 per cent that is being charged by the underlying schemes.

Weaknesses

• Lack of investment profiles. Every individual's portfolio needs to be customised according to his goals, returns required, liquidity needs, time horizon, risk profile and other investments made. This offering only provides four options which are limiting.
• There are very limited choices in terms of real estate funds and commodity funds. For instance, in the real estate space, the only choice is ING Global Real Estate Fund. And, Optimix, the portfolio manager, is a part of ING who run the Global Real Estate Fund.
• Expenses for Liquid Plus option in the scheme is on the higher side. If you are opting for the Liquid Plus option, which invests 90 per cent of assets in Indian Debt funds, then the Fund Management fee of 1.6 per cent does not make sense.
• Unlike PMS , there is no scope for direct investments in stocks or other asset classes.

Net-net

If you want to make this as part of your overall asset allocation, that is, one of the many options across various asset classes, then you could look at this product. As far as Optimix's performance goes, it has not been inspiring of lately, investors can look at this investment once their core portfolio is in place.