Chintan Haria, Head- Product Development & Strategy, ICICI Prudential AMC on financial planning and smart beta

What is your take on current market valuation and what should be the approach of MF investors for equity funds at the current market levels? 

Given that equity as an asset class has rallied continuously, valuations are no longer cheap. So, while investing in such a market condition, one has to be cautious. Currently, we are balanced between the risk of inflation, yields, and crude oil prices, all going up. Thus, market volatility is likely to persist. For an investor looking to make a fresh investment in the current market, the optimal approach would be to invest through asset allocation schemes such as balanced advantage and multi-asset category of schemes, which invests across multiple asset classes. 

You have recently launched your ICICI Prudential Nifty Low Vol 30 ETF FOF, what made you launch this at the current juncture? 

In 2017, we had launched ICICI Prudential Low Vol ETF for allowing investors to have exposure to the least volatile stock from the large-cap universe. Since then, there were several bouts of market volatility, but Nifty Low Vol 30 ETF delivered encouraging returns. Over the last decade, while Nifty 50 delivered 10.1 per cent CAGR, Nifty Low Volatility 30 index delivered 12.9 per cent CAGR. On a total-return basis, which includes dividends and capital appreciation, the low volatility index generated returns to the tune of 14.9 per cent as compared to 12 per cent return by Nifty 50, during the same period. 

However, given that, it was an ETF, only investors with a Demat account had access to this product. With the intent to allow other retail investors to participate in the ETF, we decided to launch ICICI Prudential Nifty Low Vol 30 ETF FOF. Since the onset of the pandemic, we have seen a rise in demand for such products. 

Talking about low volatility smart beta fund, tell us something about how investors should allocate this fund to achieve their financial goals from a financial planning perspective. 

From a financial planning perspective, this FOF can be a part of one's equity allocation. 

From an asset allocation standpoint, tell us how low volatility smart beta fund fits in asset allocation strategy. 

It is impossible to predict how markets will pan out in the near to medium term. At a time when markets could witness corrections owing to factors such as lockdown fears, hardening bond yields, and rising inflation, market volatility is likely to be heightened. As a result, one's allocation to equities will be impacted. By having a low volatility factor-based fund in the portfolio, an investor has an opportunity to cushion the portfolio from the potential downside risk. Over time, it can help build confidence to stay invested in the market for the long-term. 

As far as expense ratio is concerned, how ICICI Prudential Nifty Low Vol 30 ETF FOF is placed against peers? 

As per the regulation, the expense is capped at 1 per cent, which is applicable to passive funds i.e. ETFs/index funds and FOFs investing in passive funds.