Edelweiss Multi Asset Allocation Fund: smart way to enjoy LTCG tax?

Many mutual fund investors have been discussing the new fund offer or NFO of a multi asset allocation fund since yesterday. Surprised? Well, multi asset funds have been around for a while but the new offering from Edelweiss Mutual Fund scores over the existing ones on the taxation front: the scheme qualifies for LTCG or long-term capital gains taxation of 20% after three years. The LTCG taxes, a great attraction to debt mutual funds, were withdrawn in the last budget.

Over to Edelweiss Multi Asset Allocation Fund, an open-ended scheme that will invest in equity, debt, commodities, and in units of REITs & InvITs. The portfolio construction strategy of the scheme will be 45-55% in fixed income, 35-40% in equity arbitrage, and 10-15% in gold and silver arbitrage. The portfolio helps the scheme to qualify for long-term capital gains tax.

As per Sebi mandate, multi asset schemes must invest 10% in three assets. Some schemes invest in equity, debt, and commodities (gold/silver). Some schemes dynamically manage the equity and debt part and also invest in commodities (gold or silver). Some schemes invest in equities, debt, and international equities.

Edelweiss Multi Asset Fund will invest in debt (45-55%), equity arbitrage (35-40%), and gold/silver arbitrage (10-15%). As you can see, the portfolio is constructed to offer safety and the benefits of LTCG taxation. Equity arbitrage and debt make the scheme safer. The equity arbitrage part would also help to qualify for LTCG tax as 35% equity exposure is needed to qualify for favourable taxation.

What kind of returns can you expect? The returns would be closer to a fixed income or debt scheme. The equity and commodity arbitrage and debt may offer single-digit returns. According to Niranjan Avasthi, Head - Products, Marketing & Digital, Edelweiss Mutual Fund, tweeted that the weighted average return from the portfolio based on historical mean comes to around 7.5%. Note, this is indicative returns based on historical data and it should not be taken as assured returns.

Since this is a new fund offer, our stance remains the same. The scheme is offering something that is not available in the market. Fund houses are in a huddle to come up with new products to offer LTCG benefits. It is likely that many such products are likely to hit the market in the coming days. You can invest in the NFO if you are excited about the product or wait for the scheme to build a track record.