NFO Insight: Can AlphaGrep's algorithm-driven multi-asset fund deliver better risk-adjusted returns?

AlphaGrep Mutual Fund has launched its first fund, the AlphaGrep Multi Asset Allocation Fund which is open for subscription and will close on July 20.

This fund will offer Indian investors access to a systematically managed, open-ended fund that dynamically allocates capital across equities, fixed income, and commodities — driven by proprietary quantitative models.

Investment approach

The scheme seeks to generate long-term capital appreciation through a diversified portfolio across multiple asset classes. Unlike traditional multi-asset strategies that rely on static allocations or discretionary decision-making, the AlphaGrep Multi Asset Allocation Fund follows an algorithmic and systematically managed investment approach.


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Powered by proprietary quantitative models, the fund dynamically allocates across equities, fixed income and commodities based on evolving market conditions, with minimal human bias and a strong emphasis on disciplined execution and risk management.

The fund's two-layer architecture seeks returns at both the asset allocation level and the individual security selection level — a distinction that sets AGMAAF apart from traditional multi-asset funds.

What does CEO say on fund launch

Bhautik Ambani: Algorithmic investing has been at the core of AlphaGrep's DNA for over a decade. Through the AlphaGrep Multi Asset Allocation Fund, we are democratizing institutional-grade algorithmic investing for retail investors.

The fund leverages proprietary quantitative models and systematic processes to make investment decisions across asset classes, enabling portfolios to dynamically adapt to changing market environments while maintaining discipline, consistency and robust risk management. We believe this approach may help investors navigate market complexities and build long-term wealth in a more efficient manner.

Algorithm-driven vs traditional multi-asset allocation funds: What experts say

Experts typically ask investors to avoid investing in NFOs unless they offer something unique. The uniqueness could be that the scheme is offering an investment option that is not available in the market or offering something extra to an existing option. Otherwise, the experts believe investors are better off with an existing scheme with a long performance record. This is because you have some historical data to base your investment decision. You don’t have any data when it comes to new offerings.

Manish Srivastava, Executive Director, Anand Rathi Wealth Limited told ETMutualFunds that algorithm driven multi asset allocation funds follow a predefined set of rules to decide how much to allocate to equity, debt and commodities based on market data and quantitative signals and this approach removes emotional decision making and ensures every allocation change is consistent and as per the strategy.

“Traditional multi-asset funds rely on the fund manager's judgement and market experience and the fully algorithm driven approach adopted by AlphaGrep Multi Asset Allocation Fund is new in the hybrid fund category.”

Srivastava further said that Quant Mutual Fund and Capitalmind Mutual Fund already follow a partially algorithm driven approach, combining quantitative models with human oversight. Investors can avoid strategies that do not yet have a sufficiently long track record across market cycles.

Nilesh Naik, Head of PhonePe Mutual Funds shared with ETMutualFunds that algorithm-driven multi-asset allocation funds rely on quantitative models for making asset allocation and security selection decisions and use of quantitative models can help reduce fund manager bias, as such funds auto-adapt to market conditions based on pre-determined logic. “The outcome of such strategies, however, depends on the robustness of the quantitative models.”

Market cap allocation

The fund will allocate 35-80% in equity and equity related instruments, 10-80% in debt and money market instruments, 10-60% in Gold/Silver/other permitted Commodities ETFs and Exchange Traded Commodity Derivatives and 0-10% in units issued by INVITs.

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Multi-asset allocation funds vs separate asset class investments

Commenting on whether investors should choose multi asset allocation funds or separate asset class investments, Naik said that multi-asset allocation funds are typically suitable for cautious investors, especially if they do not intend to make asset allocation decisions themselves.

Apart from the benefit of active asset allocation, such funds also allow investors to take tax efficient exposure to fixed income asset classes due to their favorable taxation treatment as compared to pure debt mutual funds and funds that maintain gross equity exposure in the range of 35-65% enjoy long-term capital gains tax benefit if the holding period exceeds 24 months.

In contrast, Srivastava said for investors, it is better to keep asset allocation in their own control rather than leave it to a single fund and ideally, asset allocation should be managed at the portfolio level instead of the fund level, based on individual financial goals and risk appetite as this also allows investors to decide their market cap allocation within equity, whether across large, mid or small caps, something a multi asset allocation fund does not provide.

Over the long term, this flexibility can lead to better portfolio outcomes, while keeping equity as the primary driver of wealth creation rather than diluting it through allocations to debt and commodities, he further said.

According to scheme information document (SID), on the security selection front, the fund leverages a multi-factor framework incorporating traditional factors such as value, momentum, quality and size, alongside proprietary alpha signals derived from earnings revisions, sentiment analysis, market microstructure, fund flows, seasonality patterns and machine learning models.

The fund is suitable for investors who are seeking long term capital appreciation by investing in a diversified portfolio and want investments in equity and equity related instruments, debt and money market instruments, Commodities ETFs and Exchange Traded Commodity Derivatives.

Multi-asset allocation funds vs equity funds: Which offers better risk-adjusted returns?

Srivastava said multi asset allocation funds are likely to experience lower volatility than pure equity funds because a part of the portfolio is allocated to debt and commodities. However, risk should be assessed in the context of an investor's overall portfolio rather than as a standalone fund.

He further said that Jensen's Alpha is the most appropriate measure to evaluate the risk adjusted returns of a portfolio and in our analysis of five year rolling returns since 2014, pure equity funds portfolio delivered a higher Jensen's Alpha than multi asset allocation funds which further reinforces that investors are better off keeping both asset allocation and equity market cap allocation in their own control at the portfolio level, rather than delegating these decisions to a single fund.

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Naik said that while it may be difficult to generalise, asset allocation funds typically help in reducing risk and improving risk adjusted returns. However, the actual outcome at a fund level would depend on the success of the fund in managing asset allocation and security selection.

Other funds in multi asset allocation basket and outlook

Around eight multi asset allocation funds have completed five years of existence of which Quant Multi Asset Allocation Fund delivered the highest return of 19.19% in the last five years and in the same period, Axis Multi Asset Allocation Fund gave the lowest return of 9.88%.

Naik said that multi asset allocation funds are typically all-weather funds due to their diversified nature and dynamic asset allocation approach.

Srivastava said that the multi asset allocation funds take away an investor's control over asset allocation and market cap allocation. Investors do not have clear visibility of how much is allocated in equity, debt or commodities or the allocation across large, mid and small cap stocks within equity.

There could also be an unintended over allocation to commodities without the investor even realising it which may not be aligned with their investment strategy. Asset allocation is one of the most important drivers of long term returns and is therefore better managed at the portfolio level rather than delegated to a single fund, he further said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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