Optimix Retireinvest Fund: How good?

The primary objective of the Scheme is to provide long-term capital appreciation by investing predominantly in equity and equity-related securities accessed on the basis of advice from a panel of third party investment advisors selected in accordance with the OptiMix Multi Manager investment process. The Scheme does not assure or guarantee any returns.
*Source: Offer Document

Optimix Retirement Invest Fund Series 1 (ORIFS1) is a multi-manager equity fund. Optimix (a brand owned by ING Mutual Fund) has carved a niche in the global multi-manager mutual fund segment. The multi-manager mutual fund concept is a relatively nascent one in the Indian context. Multi-managers 'outsource' fund management; their role is restricted to selecting the underlying mutual funds (or the fund houses) that are best placed to achieve the investment objective of the multi manager mutual fund. Optimix employs the Active Multi-Manager Process with qualitative and quantitative factors for fund selection.

ORIFS1 will be something of a first for Optimix. Until now, Optimix's launches were in the Fund of Funds (FoF) segment. In FoF, the multi-manager selects the underlying funds. ORIFS1 will pursue the 'manage the manager' approach. Under this style, the multi-manager, based on its evaluation parameters, selects fund houses and PMS (portfolio manager service) providers

The idea is to short-list the 'best of breed' fund houses and PMS providers based on the value they can add to a portfolio. So a fund house specialising in large caps will be given the mandate to select the best large caps for the multi-manager. The mid cap specialist (be it a fund house or PMS provider) will short-list the mid caps. On the same lines, there could be a growth/value style specialist fund house/PMS provider that will advance its recommended stock picks. The multi-manager will collate the recommendations and invest accordingly. The money allocated to a particular style (value, growth) or market segment (large caps, mid caps) is pre-determined. However, the allocation could change based on the multi-manager's view on the markets. For instance, when large caps are attractively priced,the multi-manager could have a higher allocation to them; when large cap prices peak, he could lower the allocation.

It will be apparent to the investor that the 'manage the manager process' is distinct from an FoF. Under FoF, both the advice and the fund management are outsourced, whereas under 'manager the manager' only the advice is outsourced, the fund is managed by the multi-manager. In this case, Optimix will manage ORIFS1 based on the recommendations of the fund houses and PMS providers.

The 'manage the manager' fund immediately takes care of two ills ailing the FoF. In terms of expenses, FoF were plagued by layering of costs; the underlying fund has a recurring expense (like fund management charges for instance) and the FoF also charges recurring expenses (so more fund management charges). Another area that works to FoF's detriment is the tax status; due to an anomaly in the taxation structure, equity FoFs are classified as debt funds. Conversely, 'equity manage the manager' funds are classified as equity funds.

Although, ORIFS1 offers tax benefit under Section 80C, investors should not categorise it along with other tax-saving equity funds (also referred to as ELSS i.e. equity-linked saving schemes). ORIFS1 is a 10-Yr close-ended equity fund (with earliest exit after 3 years after paying the unamortised expenses) as opposed to a tax-saving fund, which has a 3-Yr lock-in. ORIFS1 as its name suggests is more suitable for investors wishing to set aside money for retirement. The longer lock-in is in place to enable investors to accumulate wealth over the long-term, which is crucial for retirement planning.

The multi-manager process appears interesting. It will enable investors to diversify their investments across investment styles and market segments, based on the inputs of various fund houses/PMS providers. However, Optimix's exposure to Indian stock markets is relatively limited (it is yet to complete two years in the domestic mutual fund industry), so it's still early to evaluate its performance. Also we would first like to see the fund houses/PMS providers that constitute its 'best of breed' investment advisors before commenting on the same.

We recommend that investors evaluate the fund over the long-term (at least 3 years) before taking a view on the 'manage the manager' process. Based on the long-term performance of the present offering, future offerings of the Optimix Retireinvest Fund Series can be considered for investment. Till then, they should consider investing in existing well-managed equity funds across market segments and investment styles to accumulate wealth for retirement.

In terms of allocation to various investment styles (value, growth, blend) and market segments (large caps, mid caps, small caps), it will be the fund manager's call. Based on his allocations and Optimix's Multi Manager Investment Process, the 'best of breed' fund houses/PMS providers will be short-listed.

With its focus on diversifying across investment styles and market segments, ORIFS1 should be well-placed to counter stock market volatility. The flexibility to invest upto 20% in debt can also be an ally during market turbulence. However, the fund's performance will depend heavily on its selection of the best fund houses/PMS providers, which at this stage is not known to the investor.