With the belief that there are attractive returns to be earned in the bond market and a potential for bear-market rallies in the equity markets on the back of increasingly attractive valuations, Fidelity Mutual Fund has launched an open-ended fund of funds (FoF or a fund that invests in other mutual funds) named Fidelity Wealth Builder Fund.
This fund will offer three plans with varying degrees of asset allocation to equity and debt that the investor can choose from according to his risk appetite. The investment objective of the fund is to generate reasonable returns based on the plan selected.
The fund has no entry load and it also allows free switching between plans. It will have a custom benchmark for each plan created using the CRISIL Composite Bond Fund Index and the BSE (^BSESN : 9066.7 -357.54
) 200 (in the same proportion as the allocation between debt and equity in each plan).
Fund portfolio
According to Ashu Suyash, managing director and country head-India, Fidelity International, "The Fidelity Wealth Builder Fund will predominantly invest in Fidelity's domestic equity and fixed income funds, except Fidelity Tax Advantage Fund and Fidelity Multi-Manager Cash Fund. The fund may also invest in funds that Fidelity will launch in India in future."
Currently, the FoF will invest in the following funds:
Equity: Fidelity Equity Fund, Fidelity India Special Situations Fund, Fidelity India Growth Fund, and Fidelity International Opportunities Fund.
Fixed income: Fidelity Cash Fund, Fidelity Liquid Plus Fund, Fidelity Short Term Income Fund (to be converted to Flexi Bond Fund shortly) and Fidelity Flexi Gilt Fund.
The three plans in this fund have different allocations to debt and equity schemes.
Plan A: It will invest predominantly in debt schemes and around 15 per cent in equity schemes.
Plan B: It will invest predominantly in debt schemes and around 30 per cent in equity schemes.
Plan C: It will invest 50 per cent in debt schemes and 50 per cent in equity schemes.
Portfolio selection
The selection of funds will be based on both qualitative and quantitative parameters. "The qualitative factors would include the fund's portfolio positioning, the scheme's suitability in the prevailing market environment, and the investment style of the fund manager (of the underlying fund). Quantitative inputs would include the scheme's track record and performance measures such as risk-adjusted returns," adds Suyash.
Past performance
The fund house has a limited product universe. This FoF will currently invest in the eight funds (both debt and equity) of Fidelity (see table). According to Dhirendra Kumar, chief executive officer of Value Research, "The fund house is relatively new and most of its equity schemes (which could be a critical differentiator) are also relatively new. Also, among the four Fidelity equity schemes, only one has a three-year track record, hence many of its schemes have not seen the whole equity cycle."
The fund manager of the FoF is Sameer Kulkarni who also manages funds such as Fidelity Short Term Income Fund and Fidelity Cash Fund.
Should you invest?
Fund of funds have a duplication of expenses (one, you pay the fee for the basic funds and then you also pay a fee for the fund of funds). And when it comes to taxation, these funds are treated at par with debt funds.
According to Prasunjit Mukherjee, a Kolkata-based mutual fund analyst, "Fidelity's funds have delivered average performance, so a concentrated basket of such funds adds to the investor's risk. Also, the performance of FoFs in India has not been at all impressive because such funds need skilful management."
According to Kumar, "The no entry load structure might help investors initially. The only reason why an investor should go for a fund like this is to enforce discipline."
Moreover, picking up the right fund is a difficult task. "If you need diversification, go for more than one index fund," says Veer Sardesai, a Pune-based financial planner.
Further, Mukherjee advises, "If one wants to take advantage of the mechanism of moving from one category to another, one can use such funds." But according to him, one should invest in FoFs that invest in a varied basket of funds (unlike this one that will invest only in Fidelity's funds).
We advise caution.
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