The market regulator kept one category as ‘Dynamic Asset Allocation or Balanced Advantage’, that allows the equity and debt assets to be managed dynamically. This is where ICICI Prudential Mutual Fund faced a dilemma, as it manages two similar funds – ICICI Prudential Balanced Advantage Fund and ICICI Prudential Dynamic Plan. It had an option to merge the funds or categorize one differently.

Both funds were performing well with two different fund management styles and commanded assets in excess of Rs 25,000 crore and Rs 10,000 crore respectively. Hence, merging the two schemes would have resulted in reduced flexibility of the resultant fund.

So, ICICI Prudential Mutual Fund decided to categorise ICICI Prudential Dynamic Plan as a multi-asset fund and renaming it as ICICI Prudential Multi-Asset Fund. A multi-asset fund, based on SEBI’s definition, needs to invest a minimum of 10% in at least three different asset classes. Thus, apart from equity and debt, the new scheme will now invest a minimum of 10% in Gold/Gold ETF/Units of REITs & INVITs or any other asset as permitted by SEBI.

A dynamic fund, as the name suggests, has the flexibility to vary its equity exposure between 0%-100%. Therefore, if the fund manager’s research finds the market overvalued, he can move from equity to debt assets, thus cushioning the portfolio from volatility or a potential fall in value. ICICI Prudential Dynamic Plan, however, kept an allocation around 75% to equity at most times.

For existing investors, the flexibility of the fund, in terms of asset allocation, will remain the same. However, the fund will need to invest a minimum 10% in assets such as Gold or REITs. This may influence the returns of the fund and its volatility going ahead. Thus, you will need to cross-check if the asset allocation pattern, suits your risk profile. If not, take the help of an investment adviser.

In terms of performance, the soon to be multi-asset fund was a top performer amongst its peers, delivering market-beating returns. When speaking of a dynamic ability to manage assets, one expects the fund manager to aggressively move in and out of equity. The fund manager of ICICI Pru Dynamic Plan, refrains from trying to take advantage or short-term market movements and keeps a long-term focus.

In this brief analysis, we take a close look at the features and performance of ICICI Prudential Dynamic Plan, and what will change under the new positioning of the fund.

Investment Objective of ICICI Prudential Dynamic Plan (ICICI Prudential Multi-Asset Fund)

ICICI Prudential Dynamic Plan has an investment objective to "generate capital appreciation by actively investing in equity and equity related securities. For defensive considerations, the Scheme may invest in debt, money market instruments and derivatives. The investment manager will have the discretion to take aggressive asset calls i.e. by staying 100% invested in equity at a given point of time and 0% at another, in which case, the fund may be invested in debt related instruments."

The new fund, ICICI Prudential Multi-Asset Fund will have an investment objective to "generate capital appreciation and income for investors by investing across asset classes."

ICICI Prudential Dynamic Plan Details

Fund Facts

Category	Dynamic	Style	Blend
Type	Open ended	Market Cap Bias	Multi-cap
Launch Date	12-Nov-02	SI Return (CAGR)	23.30%
Corpus (Cr)	Rs 11,729	Min./Add. Inv.	Rs 5,000 / Rs 1,000
Expense Ratio (Dir/Reg)	0.98% / 2.28%	Exit Load	1%

Portfolio Data as on April 30, 2018.
SI Return as on May 10, 2018.
(Source: ACE MF)

Under normal circumstances, ICICI Prudential Dynamic Plan allocates…

• 0% - 100% to equity and equity related securities

• 0% - 100% to debt and money market instruments

• 0% - 10% to units issued by REITs and InvITs

From May 28, 2018, the new scheme ICICI Prudential Multi-Asset Fund will allocate –

• 10% - 80% to equity and equity related securities

• 10% - 80% to debt and money market instruments

• 10% - 80% to Gold/Gold ETF/Units of REITs and InvITs

Growth Of Rs 10,000, If Invested In ICICI Prudential Dynamic Plan 5 Years Ago

ICICI Prudential Dynamic Plan: Year-on-Year Performance

ICICI Prudential Dynamic Plan: Performance Vis-à-vis Category Peers

Rolling Period Returns

Scheme Name	Corpus (Rs Cr)	1 Year	2 Year	3 Year	5 Year	Std Dev	Sharpe
ICICI Pru Dynamic Plan	11,729	20.40	18.20	11.57	17.79	11.35	0.10
Invesco India Dynamic Equity Fund	1,008	20.55	14.55	11.56	16.48	11.26	0.08
HDFC Dynamic PE Ratio FOF	23	16.67	15.10	10.72	10.64	11.49	0.05
Franklin India Dynamic PE Ratio FOFs	882	11.91	10.86	9.64	11.74	5.68	0.05
Edelweiss Multi - Asset Allocation Fund	8	14.93	10.97	9.43	13.51	11.23	0.02
HSBC Dynamic Asset Allocation Fund	45	17.21	13.28	9.08	11.43	10.95	0.06
SBI Dynamic Asset Allocation Fund	162	13.48	10.90	9.04	-	7.64	0.07
Quantum Multi Asset Fund-Direct Plan	15	9.43	10.76	8.53	10.01	4.71	0.07
DSPBR Dynamic Asset Allocation Fund	845	9.51	10.25	8.46	-	5.72	0.00
Principal Smart Equity Fund	176	9.60	8.65	7.19	12.75	5.71	-0.05
L&T Dynamic Equity Fund	487	8.88	6.35	7.12	14.90	7.10	-0.09
IDFC Dynamic Equity Fund	765	11.81	8.48	6.35	-	5.60	-0.02
UTI Multi Asset Fund	996	11.30	10.09	5.93	8.17	8.43	-0.04
Franklin India Multi-Asset Solution Fund	40	7.55	8.11	5.93	-	4.77	-0.09
Sundaram Multi Asset Fund	39	11.25	8.90	5.16	7.32	8.90	-0.03
Motilal Oswal Dynamic Fund	1,745	17.03	-	-	-	7.15	0.23
Nifty 50 - TRI		20.43	14.56	9.12	14.16	12.96	0.10

Returns are on a rolling basis and those depicted over 1-Yr are compounded annualised.
Data as on May 10, 2018
(Source: ACE MF)  

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

ICICI Prudential Dynamic Plan has been a strong performer across market periods. It has outscored the benchmark by a decent margin across all periods, though the margin of outperformance was subdued in the recent 1-year rolling periods. Compared to other dynamic funds and multi-asset fund, ICICI Prudential Dynamic Plan ranks on the top in all the periods considered.

Being a dynamic fund, one would expect a lower volatility, given its dynamic capability to negotiate market cycles. As ICICI Prudential Dynamic Plan consistently maintains a high equity allocation, the volatility of the fund is higher than most other schemes, yet it's marginally lower than the benchmark. Nonetheless, ICICI Prudential Dynamic Plan scores well in terms of risk-adjusted returns.

Apart from ICICI Pru Dynamic Plan, the top five dynamic funds in the 3-year rolling period performance include—Invesco India Dynamic Equity Fund, HDFC Dynamic PE Ratio FOF, Franklin India Dynamic PE Ratio FOFs, Edelweiss Multi - Asset Allocation Fund, and HSBC Dynamic Asset Allocation Fund.

Investment Strategy of ICICI Prudential Dynamic Plan (ICICI Prudential Multi-Asset Fund)

The new scheme will allocate the assets between Equity, Debt, Gold/Gold ETF/commodities and units of REITs & InvITs. The actual percentage of investment in the asset class will be decided after considering the prevailing market conditions, the macroeconomic environment (including interest rates and inflation), the performance of the corporate sector, the equity markets and general liquidity and other considerations in the economy and markets.

The fund management may choose to continuously churn the portfolio of the multi-asset fund in order to achieve the investment objective. Thus, the portfolio turnover ratio could be very high and AMC may change the full portfolio, commensurate with the investment objectives of the Scheme.

The fund will aim to take long-term call on stocks, which in an opinion of the Fund Manager, offers better return over a long period. In stocks selection process, the AMC proposes to consider stocks with long-term growth prospects but currently trading at modest relative valuations. The Scheme proposes to concentrate on business and economic fundamentals driven by in-depth research techniques, employing strong stock selection.

Stock-picking process proposed to be adopted is generally a “bottom-up” approach, seeking to identify companies with above-average profitability supported by sustainable competitive advantages and also to use a “top-down” discipline for risk control by ensuring representation of companies from various industries.

In addition, the investment team of the AMC will study the macro economic conditions, including the political, economic environment and factors affecting liquidity and interest rates. The AMC would use this analysis to attempt to predict the likely direction of interest rates and position the portfolio appropriately to take advantage of the same.

ICICI Prudential Dynamic Plan - Portfolio Allocation and Market Capitalisation Trends

ICICI Prudential Dynamic Plan – Top Portfolio Holdings

Top 10 Stocks   Stocks % of Assets ICICI Bank Ltd. 4.41 NTPC Ltd. 4.32 Infosys Ltd. 4.06 ITC Ltd. 3.90 PGCIL 3.50 State Bank Of India 2.94 Hindalco Industries Ltd. 2.54 Bharti Airtel Ltd. 2.53 Oil & Natural Gas Corporation Ltd. 2.46 Cipla Ltd. 2.25	Top 5 Sectors
Holdings (in %) as on April 30, 2018 (Source: ACEMF)

As on April 30, 2018, ICICI Prudential Dynamic Plan maintained a well-diversified portfolio across stocks and sectors. Not a single stock in the portfolio has an exposure above 5% and the assets are not skewed to the top holdings. The weightage to the top 10 holdings is held in a narrow range of 2%-4%. ICICI Bank, NTPC, Infosys, ITC and PGCIL lead the list of top stocks.

Among the sector allocations, Banks lead the list with an exposure of 10%. Unlike other schemes, there is no dominant exposure to banks and financial services. Power stocks follow closely behind with an 8.5% exposure. Software and Consumer Non-durable stocks, command an allocation of around 6% each. Pharma stocks gain an allocation of 5% in the portfolio.

Top Gainers in ICICI Prudential Dynamic Plan's portfolio

Out of the 61 stocks, about 30 stocks have been held for over a year. Among the top performers, were stocks such as Infosys, HCL Technologies, L&T. These stocks generated returns of 30%, 29% and 20% respectively.

There were a few laggards as well. State Bank of India with an average holding of 3% fell by 15% over the year. Similarly, stocks such as Sun Pharmaceuticals and The Great Eastern Shipping added to the pressure in the portfolio, by falling 17%-18% each.

Suitability of ICICI Prudential Dynamic Plan (ICICI Prudential Multi-Asset Fund)

A Multi Asset Fund invests in different asset classes such as equity, debt, and gold at the same time. They invest in different asset classes/schemes following the predetermined limits of allocation to each of them.

Some multi asset funds directly invest in equity stocks, debt instruments, and gold units, while some funds invest indirectly in these asset classes. Multi asset funds are at times also named as Fund of Fund Schemes.

But the basic purpose of investing in multi-asset funds is to diversify investments in assets classes that share very low positive correlation. Lower positive correlation between two asset classes indicates that they are unlikely to move in the same direction. It has been observed in the past that gold and equity share a low correlation with each other. And, hence, having these two asset classes in your portfolio can help diversify it better. While debt is considered safer than equities; equities can generate superior returns. And Including gold would improve the diversification of your portfolio.

Multi asset funds are best suited for investors looking for diversification as well as dynamic fund management.

ICICI Prudential Dynamic Plan has been a top fund of its class. With an additional exposure to a third asset class will improve the diversification of the fund. However, returns going ahead will differ from what was delivered in the past, due to an additional 10% exposure to a new asset calss.

Though the category of the fund is changed, the fund remains in good hands. But as mentioned at the beginning of the research note, you need to wait and watch for any noticeable changes in asset allocation and performance.

If you plan to invest in multi-asset funds, do ensure that the investments is in line with your financial goals. If you are not sure about how to align these schemes with your tax planning or financial goals, do consult your financial planner or investment advisor.

Note:This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor.

Editor's note: PersonalFN has a long track record of offering unbiased mutual fund research services. It analyses thousands of data points to shortlist schemes and also applies a whole host of qualitative parameters to select only a handful schemes for your portfolio. Want to try PersonalFN’s Premium Mutual Fund Research service ‘FundSelect’? Every month, our FundSelect service will provide you with an insightful and practical guidance on which mutual fund schemes to buy, hold or sell, which will assist in creating the ultimate portfolio that has the potential to beat the market. And there’s more great news! FundSelect is turning FIFTEEN. And on this auspicious 15th anniversary of FundSelect, we intend to make it “ultra-special” for you. How? Well, how about getting 1 Year of access to FundSelect virtually Free? And if you wish, perhaps even MORE... Check out the exciting offers that can be availed on subscriptions to FundSelect here. Go ahead and subscribe to PersonalFN’s FundSelect NOW!

 

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