DECODED: DSP BlackRock Dynamic Asset Allocation Fund
Jan 17 2014
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WHAT IS IT: DSP Blackrock Dynamic Asset Allocation Fund is an open-ended fund of fund scheme that offers an asset allocation solution depending on relative attractiveness of equity and fixed income markets. The scheme endeavours to dynamically change the asset allocation between equity and fixed income based on an in-house designed yield gap model.
NFO PERIOD: January 17 to 31.
SCHEME OBJECTIVE: The scheme would be investing in four funds — DSP Blackrock Top 100 Equity Fund and DSP Blackrock Equity Fund for equity exposure and DSP Blackrock Strategic Bond Fund and DSP Blackrock Short Term Fund for debt exposure. The asset allocation in two equity and two debt funds will be based on yield gap and modified yield gap ratio. The yield gap ratio is calculated by dividing 10 year G-Sec yield (a proxy for debt market) by earnings yield of Nifty (a proxy for equity market). Earnings yield of Nifty will be earnings divided by price. Modified yield gap a variation of the yield gap is calculated by dividing one-year G-Sec yield by earnings yield of Nifty. At a given time if equity is more attractive than debt then equity allocation will go up and debt allocation will come down and vice versa. There will be automatic rebalancing of portfolios.
ASSET ALLOCATION: Equity gets 10-90 per cent, debt gets 10-90 per cent and money market gets 0-10 per cent allocations. If the scheme was live at present, the yield gap model suggests a 10 per cent equity allocation and 90 per cent in debt. The allocation between the primary underlying schemes in each asset class will be equally weighted.
BENCHMARK: Crisil Balanced Fund Index.
LOAD STRUCTURE: There is an exit load of 1 per cent for redemption before one year of investment and 0.5 per cent for redemption between one year and two year.
FC VERDICT: The scheme is essentially trying to time investments in equities and debt. Thus, the underlying philosophy of this scheme is that one should play the market by getting out of equities and getting into debt if stocks are overvalued, under the assumption that it may correct and fall, and do the reverse if the opposite seems to be scenario from the technical ratios. But another school of thought suggests investors should have stable asset allocation ratios as per their long-term objectives and not re-jig it to play for short-term gain. Further, frequent portfolio churning for dynamic asset allocation will mean added cost for the fund. It’s a one of a kind scheme, those willing to take some risk for potential gains may consider this for investment.