Samco Dynamic Asset Allocation Fund NFO – Issue Details and Review

Samco Dynamic Asset Allocation Fund NFO – Introduction

Samco Mutual Funds has launched Dynamic Asset Allocation Fund NFO. This NFO would open for subscription on December 7, 2023 and closes on December 21, 2023. After a initial subscription period, the fund will reopen for further subscription after 5 working days. In this article we would provide Samco Dynamic Asset Allocation Fund NFO issue details, investment objective, positive aspects, risk factors and review.

Also Read: Top Performing Largecap Funds in the last 5 years till 2023

Samco Dynamic Asset Allocation Fund NFO – Dates and issue details

Fund Name Samco Dynamic Asset Allocation Fund
NFO Opens 07-Dec-23
NFO closes 21-Dec-23
Scheme reopens for continuous purchase/sale Within 5 working days
Minimum Application Amount Rs  5,000 and in multiples of Rs  1 thereafter
Minimum SIP Rs 1,000 for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load For units in excess of 25% of the investment, 1% will be charged for redemption Within 12 months
Risk Very High Risk
Benchmark NIFTY 50 Hybrid Composite debt 50:50 Index
Fund Manager Paras Matalia

Samco Dynamic Asset Allocation Fund NFO – Investment objective

The investment objective of the Scheme is to generate income/long-term capital appreciation by investing in equity, equity derivatives, fixed income instruments and foreign securities. The allocation between equity instruments and fixed income will be managed dynamically so as to provide investors with long term capital appreciation while managing downside risk.

However, there is no assurance or guarantee that the scheme’s investment objective will be achieved.

Samco Dynamic Asset Allocation Fund – Built on Transformer Model

This fund indicates that it invests based on transformer model which comprises of :

Equities – Trend Model – It identifies stages of market and invests based on accumulation, uptrends, distribution and downtrends.

Debt – EDMO model – The EDMO model suggests that if a stock of a company is considered a good investment, then its debt is also worth considering. In certain instances, if a particular company’s debt yields more, assuming other factors like its credit rating and the stock’s fundamental soundness are equal, then this is an opportunity to invest in such instrument which has higher yields.

Debt Vs Arbitrage – In order to achieve Equity Taxation, average gross equity exposure in last 12 months should be 65%. While moving out of equities in bear markets or market tops, equity taxation is at risk, decision would be to have mandated gross equity exposure by doing arbitrage. Once the mandated exposure in equities is taken care of, debt vs. arbitrage would be chosen basis the optimal yield. Endeavour to achieve equity taxation and during other times optimise for debt or arbitrage depending on the risk and returns of the asset.

Samco Dynamic Asset Allocation Fund NFO – Allocation Details

Type of instruments Min % Max % Risk Profile
Equity & Equity related instruments including derivatives 0% 100% Very High
Debt and Money Market Instruments, including Units of Debt oriented mutual fund schemes 0% 25% Low to Moderate

Samco DAAF Model : Back tested vs benchmark

As per Samco presentation, they have provided how Samco DAAF model back test compared to benchmark in 1 year and 3 years rolling returns.

Samco Dynamic Asset Allocation Fund NFO – Back tested - 1 Year Rolling Returns

Samco Dynamic Asset Allocation Fund NFO – Back tested - 3 Year Rolling Returns

Performance of existing Dynamic Asset Allocation Funds

Here are the annualised returns of the dynamic asset allocation funds

Scheme Name 3 Yrs 5 Yrs 10 Yrs
HDFC Balanced Advantage Fund 27% 18% 17%
Baroda BNP Paribas Balanced Advantage Fund 14% 16%
Edelweiss Balanced Advantage Fund 14% 14% 13%
ICICI Prudential Balanced Advantage Fund 14% 13% 13%
Kotak Balanced Advantage Fund 12% 12%
Nippon India Balanced Advantage Fund 14% 12% 13%
Aditya Birla Sun Life Balanced Advantage Fund 12% 12% 13%
Union Balanced Advantage Fund 10% 12%
Motilal Oswal Balance Advantage Fund 12% 11%
Invesco India Balanced Advantage Fund 13% 11% 13%
Bandhan Balanced Advantage Fund 11% 11%
Axis Balanced Advantage Fund 12% 10%
HSBC Balanced Advantage Fund 10% 10% 13%
DSP Dynamic Asset Allocation Fund 9% 10%
Sundaram Balanced Advantage Fund 11% 9% 11%
Bank of India Balanced Advantage Fund 13% 8%

Samco Dynamic Asset Allocation Fund NFO – Positive Aspects

Here are some potential advantages of investing in dynamic asset allocation funds (DAA):

  • Risk Management: DAA funds aim to manage risk by dynamically adjusting the allocation to different asset classes. This flexibility allows the fund manager to reduce exposure to higher-risk assets during market downturns and increase exposure to potentially safer assets, thereby managing overall portfolio risk.
  • Adaptability to Market Conditions: These funds have the ability to adapt to changing market conditions. If the fund manager anticipates a bullish market, they may increase exposure to equities, and if a bearish market is expected, they may reduce equity exposure and allocate more to fixed-income or other defensive assets.
  • Potential for Enhanced Returns: The flexibility to move between asset classes based on market conditions may provide opportunities to enhance returns. By taking advantage of changing market trends, DAA funds seek to capitalize on potential opportunities for capital appreciation.
  • Active Management: DAA funds involve active management, where fund managers continuously analyze market trends, economic indicators, and other factors to make strategic asset allocation decisions. This active approach aims to outperform passive investment strategies during various market conditions.
  • Diversification: These funds typically invest in a mix of asset classes, such as equities, bonds, and cash equivalents. Diversification can help spread risk across different types of assets and reduce the impact of poor performance in any single asset class.
  • Inflation Hedge: Depending on the fund’s strategy, it may provide a hedge against inflation by investing in assets that historically have shown resilience in inflationary environments, such as equities or real assets.

Also Read: Best Balanced Advantage Mutual Funds for 2024

Samco Dynamic Asset Allocation Fund NFO – Risk Factors

  • Market Risk: DAA funds are susceptible to general market fluctuations, and the fund’s performance can be influenced by changes in equity and fixed-income markets. The dynamic adjustments in asset allocation may not always result in positive returns, especially during volatile market conditions.
  • Manager Risk: The success of a DAA fund relies heavily on the expertise and decision-making of the fund manager. Poor managerial decisions or a lack of effective risk management can adversely impact returns. Changes in fund management could introduce uncertainties and potentially affect the fund’s performance.
  • Interest Rate Risk: DAA funds with exposure to fixed-income securities are exposed to interest rate risk. Changes in interest rates can impact the value of existing bonds, affecting the fund’s overall returns.
  • Model and Strategy Risk: DAA funds often rely on quantitative models and algorithms for asset allocation. Inaccuracies or failures in these models may lead to suboptimal investment decisions.
  • Market Timing Risk: The success of dynamic asset allocation relies on the fund manager’s ability to accurately time the market, which is inherently challenging. Incorrect market timing decisions can lead to losses.

Investors should go through the Samco Dynamic Asset Allocation Fund NFO Prospectus for complete risk factors

Samco Dynamic Asset Allocation Fund NFO – Conclusion and Review

Investing in Samco Dynamic Asset Allocation (DAA) fund NFO offers advantages through a strategic approach to portfolio management, dynamically adjusting asset allocations based on market conditions. This flexibility provides effective risk management and potential enhanced returns.

However, risks in dynamic asset allocation funds include market volatility impacting the effectiveness of adjustments and the potential for losses. Fund manager expertise is crucial, introducing manager risk. Additionally, interest rate fluctuations can impact performance.

Historically, such funds have demonstrated annualized returns ranging from 11% to 17% over the last 10 years. It’s important for investors to note that past performance is not indicative of future results.

Investors who understand these risk factors can consider investing in such funds for a medium to long-term perspective.

Suresh KP

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