ICICI Prudential has launched 3 life cycle funds – 2031, 2036 and 2041 – which have tenures right now of 5, 10 and 15 years respectively.
These funds are designed for goal based investing – picky our goal, select the time horizon for that goal and then choose the life cycle fund that comes closest to your desired time horizon.
The funds will calibrate their asset allocation in accordance with duration left for maturity – so while 10-15 year residual time will enable the manager to allocate 65-80% in equity, as it reduces to the 5-10 yr range, equity will drop to 50-65% and so on until it drops to 5-20% for 1 yr or less time left for maturity of the fund.
Funds will be open ended – giving you exit options if necessary but exit loads with a glide path will serve to dissuade you in the early years from exiting your goal based investments.
Manish says the fund house consciously chose to actively manage these funds rather than put a Fund Of Funds wrapper around existing funds since the manager here will likely have a much larger time horizon at his command, which can enable him to design portfolio strategy appropriately.
Equity component will have no cap bias and will considers tocks from a potentially longer time frame than most other open ended equity funds.
The debt component will also be actively managed across duration and credit strategies, until the fund reaches less than 3 years of residual time to maturity, at which point it will become more akin to a target maturity fund in terms of portfolio strategy.
The industry has had other solution based funds which are goal linked like retirement funds and children’s funds – but they never really got the kind of traction like dynamic asset allocation funds that alter allocations in tune with market environment.
Manish’s take on the relatively lukewarm appetite for such solution based funds in the past is that for investors to start trusting fund houses with 10-15-20 year savings plans, the industry perhaps needed to first show them track record of such long tenures.
Now that the industry has a lot to show for itself on this score and investors also have a lot longer experience with mutual funds, the time has finally come to build momentum around life cycle funds which have become hugely popular in the Western world on the back of the disciplined goal based investing that they encourage and the glide path outcomes that they deliver.