Review: Optimix Multi Manager Equity Fund
Optimix Multi Manager Equity Fund is an equity fund where the fund management function will be largely outsourced. Normally a mutual fund scheme has a single fund manager. Though he may have a team working with him, ultimately the decision to invest rests with him as a single individual. However, in a ‘Multi Manager’ Fund, as the name suggests, the portfolio is constructed based on the inputs of multiple fund managers.
This is how it will work. Optimix will identify the best, top performing fund houses and portfolio managers and construct the portfolio of the scheme based on their inputs. Up to 50% to 60% of the portfolio of OMMEF will be constructed based on the recommendations of what Optimix calls the core managers. The balance will be done based on the advice of ‘satellite managers’. Specialists will be chosen as per the investment type i.e. Large Cap, Mid cap or Small cap and even on investment style i.e. Growth, Value or Blended. That being said, Optimix will retain the discretion to decide on the allocation of any particular style or type of investment in the portfolio depending upon its evaluation and view of the market.
Analysis
Optimix as a fund house started its operations as a specialist in Fund of Funds (FoF). A FoF is a scheme that invests in other mutual fund schemes as per its evaluation of the best on offer. It does not directly invest in equity.
A FoF is a good concept. It resolves the main dilemma of any investor --- amongst the plethora of options, in which mutual fund scheme do I invest in? Eventually, he takes a decision based on his limited understanding or upon the advice of an agent who may be more motivated by the commissions he earns than the investor’s interest. Of course, not all intermediaries are guilty of this practice but deciding upon which advice is really unbiased and which is not is another problem altogether for the investor.
So here was a readymade solution where Optimix as a fund house did the hard work for the investor through the mechanism of a FoF. One would have thought that the government would have encouraged this idea given the fact that it protects investor interest. However, this was not to be. A FoF is still being treated as a lesser child by denying it tax benefits that a normal equity scheme gets. And what are these?
Long-term capital gains are tax-free only upon sale of an equity-oriented mutual fund. Dividend is tax-free only for equity oriented mutual fund. Short-term capital gains are taxed at the beneficial 10% rate only for equity oriented mutual fund. And what is an equity oriented mutual fund? One which invests in equity shares. Now, a FoF technically doesn’t invest in equity shares, it invests in other equity oriented mutual funds. Therefore, going strictly by the words of the law, tax benefits stand denied. However, in spirit, FoF investments are no different than the ones made by a normal equity oriented scheme. But so far, the government has been turning a blind eye to this blatant injustice. And an idea, which is not only good for investors but also for the health of the market, in general is dying a slow but sure death.
This is how it will work. Optimix will identify the best, top performing fund houses and portfolio managers and construct the portfolio of the scheme based on their inputs. Up to 50% to 60% of the portfolio of OMMEF will be constructed based on the recommendations of what Optimix calls the core managers. The balance will be done based on the advice of ‘satellite managers’. Specialists will be chosen as per the investment type i.e. Large Cap, Mid cap or Small cap and even on investment style i.e. Growth, Value or Blended. That being said, Optimix will retain the discretion to decide on the allocation of any particular style or type of investment in the portfolio depending upon its evaluation and view of the market.
Analysis
Optimix as a fund house started its operations as a specialist in Fund of Funds (FoF). A FoF is a scheme that invests in other mutual fund schemes as per its evaluation of the best on offer. It does not directly invest in equity.
A FoF is a good concept. It resolves the main dilemma of any investor --- amongst the plethora of options, in which mutual fund scheme do I invest in? Eventually, he takes a decision based on his limited understanding or upon the advice of an agent who may be more motivated by the commissions he earns than the investor’s interest. Of course, not all intermediaries are guilty of this practice but deciding upon which advice is really unbiased and which is not is another problem altogether for the investor.
So here was a readymade solution where Optimix as a fund house did the hard work for the investor through the mechanism of a FoF. One would have thought that the government would have encouraged this idea given the fact that it protects investor interest. However, this was not to be. A FoF is still being treated as a lesser child by denying it tax benefits that a normal equity scheme gets. And what are these?
Long-term capital gains are tax-free only upon sale of an equity-oriented mutual fund. Dividend is tax-free only for equity oriented mutual fund. Short-term capital gains are taxed at the beneficial 10% rate only for equity oriented mutual fund. And what is an equity oriented mutual fund? One which invests in equity shares. Now, a FoF technically doesn’t invest in equity shares, it invests in other equity oriented mutual funds. Therefore, going strictly by the words of the law, tax benefits stand denied. However, in spirit, FoF investments are no different than the ones made by a normal equity oriented scheme. But so far, the government has been turning a blind eye to this blatant injustice. And an idea, which is not only good for investors but also for the health of the market, in general is dying a slow but sure death.
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