Beat Low Interest Rates with This Balanced Investment Option

Posted On Tuesday, Mar 15, 2022


Amidst the Russia-Ukraine geopolitical crisis, rising inflation and imminent interest rate hikes by the US Federal Reserve, equity markets have fallen by over 10% YTD. In such a market environment, you may be asking yourself:

1. How can I best lower the downside risks of an equity fund?

2. Where should I invest my surplus money considering markets are fluctuating on one hand and returns from FDs have trailed behind the rate of inflation on the other?

3. Which will be the winning asset class?

Since all asset classes don't generally move at the same pace or in the same direction, it is impractical relying on one asset class to achieve your long-term goals. Therefore, it is essential to have an asset allocation strategy by diversifying across asset classes such as equities, debt and gold to generate long term risk adjusted returns.

Two Ways to Diversify your Portfolio

1. DIY Asset Allocation Approach: If you prefer a hands-on approach, you can use the DIY Approach (Do it Yourself) where you can do asset allocation yourself using Quantum’s tried and tested 12-20-80 approach with the underlying building blocks of equity, debt and gold. To know more, please click here.

2. Readymade Approach: Since the landscape is dynamic and keeps changing, it is necessary to rebalance portfolio on a periodic basis. You can simplify the asset allocation and balancing process with a readymade asset allocation offered by Quantum Multi Asset Fund of Funds (QMAFOF). QMAFOF is a Fund of Funds – that has characteristics of a hybrid fund that offers investors exposure to three asset classes of equity, debt and gold in a single investment.

Illustration 1: Quantum Multi Asset Fund of Funds Portfolio

Quantum Multi Asset Fund of Funds Portfolio

Advantages of investing with QMAFOF

1. Balancing risk with reward: The scheme has a 10-year track record of skillfully balancing risk-reward across market cycles using the underlying asset classes of equity, debt and gold.

2. Potential to earn long term risk-adjusted returns: This fund is designed especially for those who are looking for an option to FDs. This fund can give you a flavour of equity investing while limiting downside risks compared to an equity fund. The fund has historically given better returns than FDs over the long term (3 years and above). As you can see below, the 3 year rolling return has been better than an FD, 86% of the times since inception*.

Chart - 2 : 3-year rolling returns: FD vs QMAFOF

3-year rolling returns: FD vs QMAFOF

Total daysDown days vs Fixed Deposit% of outperformance

The table above indicates total number of days, number of days it has underperformed compared to an FD & percentage of outperformance. Note: The graph above has to be read in conjunction with performance of the scheme provided in the table below and *Note/ Disclaimer given below. Past Performance may or may not be sustained in Future.

3. Agile across market cycles: With QMAFoF, your portfolio stays agile as the fund manager has the flexibility to strategically position the portfolio depending on the prevailing market cycle. The fund has a broad and flexible mandate by which the fund manager can dynamically allocate anywhere between 25%-65% of the portfolio to equity or debt and the balance 10% - 20% to gold. During Covid-19 market crash in Mar 2020, fund manager has taken the opportunity to increase equity allocation from 25% to 50% in a single month. Whenever there is an opportunity, fund managers will suitably reallocate from one asset class to another while making sure not to take on undue risk in the process.

4. Unbiased allocation: Quantum Multi Asset rebalances the portfolio at regular intervals based on the performance of underlying assets, relieving the investor from monitoring markets across asset classes such as equity, debt and gold.

At the onset of Covid, markets fell by over 40% in just one month. After the 2008 crisis, markets fell by 55% in few months. So, when you are looking at a solution for simplifying your asset allocation needs, you need to ensure you are selecting a fund that is unbiased and not favoured to a particular asset class.

The underlying portfolio in our allocation is based on our belief that irrespective of what scenario is likely to shape up, there is a role for each and every asset class, in your portfolio.

Remember risks and uncertainty can strike anytime, and therefore, which asset will be useful in that kind of scenario, is unpredictable. And therefore, each asset will play a role in different kinds of scenarios.

1. Equities over the long term is one of the best asset classes for capital appreciation and has potential to outperform the rate of inflation over the long term. But at the same time, you need to be prepared for drawdowns in the short term due to market movements.

2. Debt brings stability and liquidity to your portfolio and lowers impact of market movements.

3. Gold plays a risk-reducing, portfolio diversifying role and limits downside risk in your portfolio.

So, you mix all three in a proportion that will help you sail any kind of market environment. The imperfect correlation between these asset classes & regular rebalancing of the portfolio will ensure investment balance and minimize the impact of losses driven by falling markets.

5. Better Tax-efficiency: Moreover, if you are an investor in a higher tax bracket with an investment horizon of 3 years or more, you get the potential for tax-efficient returns when you invest in the Quantum Multi Asset Fund of Funds compared to parking your money in Bank FDs. Interest earned on fixed deposits over any time horizon is classified as 'income from other sources' and is taxed at income tax slab rates. However, with QMAFOF, it is taxed like a debt fund. For an investment horizon of three years and above, effective taxation could be as or more attractive than fixed deposit taxation due to indexation benefit, which have not been provided in the latter. Long term capital gains are taxed at 20% with indexation. This translates to a better return on investment, especially for investors in the highest income tax bracket.

Let’s understand the indexation benefit with an illustration. Suppose you had invested Rs. 10,000 since inception in QMAFOF and redeemed your investment on Feb 28, 2022. Unlike Fixed Deposits, you have to pay capital gains tax only on redemption, translating to better post tax return with indexation benefit.

Illustration 2: Indexation Benefit Table

Investment - Jul 11, 2012 (in Rs.)10,000
Redemption - Feb 28, 2022 (A)23574
CAGR before Tax9.34%
Indexed Cost in Rs. (B)17228.26
LTCG in Rs. (A-B)6345.74
Tax on Capital gain (C)1269.15
Redeemed Corpus after LTCG (A-C)22304.85
CAGR after LTCG8.72%
Impact of Tax on CAGR-0.62%
% of CAGR Retained Post Tax93%

Past Performance may or may not be sustained in Future.

Additionally, with this fund, you can avoid the taxation on capital gains arising out of rebalancing that you would have incurred had you performed the asset allocation yourself.

Therefore, if you are looking for a sensible option for your bank FDs and a hassle-free diversified approach that is less risky than an equity fund, you can invest in the Quantum Multi Asset Fund of Funds. Your portfolio is tactfully rebalanced from time to time in the three asset classes of Equity, Debt and Gold.

Start balancing Risk with returns. Start investing in Quantum Multi Asset Fund of Funds.

Quantum Multi Asset Fund of Funds

#CRISIL Composite Bond Fund Index (20%) + CRISIL Liquid Index(25%) + S&P BSE Total Return Index (40+ Domestic Price of Gold (15%)-Direct ##S&P BSE Sensex TRI Data as of Feb 28, 2022.
Past performance may or may not be sustained in the future.
Load is not taken into consideration in scheme returns calculation.
Different Plans shall have a different expense structure.
Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR).
The fund is managed by Chirag Mehta and Nilesh Shetty. For performance of other Schemes managed by them, please click here.

Path to Profit

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The comparison with Fixed Deposits has been given for the purpose of general information / explanation purpose only. Unlike fixed deposit with Banks there is no capital protection guarantee or assurance of any return or insurance protection in Mutual Funds. Investments in Mutual Funds as compared to Fixed Deposits carry high risk, different tax treatment and subject to market risk. Investors are advised to take investments decision based on his / her investment objectives, risk appetite and arrive at informed decision before making any investment decision. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Product Labeling
  Name of the Scheme  This product is suitable for investors who are seeking*Riskometer
  Quantum Multi Asset Fund of Funds

  An Open Ended Fund of Funds Scheme Investing in schemes of Quantum Mutual Fund
  • Long term capital appreciation and current income

  • Investments in portfolio of schemes of Quantum Mutual Fund whose underlying investments are in equity, debt / money market instruments and gold.
Quantum Liquid Fund
Investors understand that their principal will be at Moderately High Risk
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
The Risk Level of the Scheme in the Risk O Meter is based on the portfolio of the scheme as on February 28, 2022.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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