An asset manager wants to launch a multi-asset fund with a 1.2% expense ratio, of which it keeps 0.7%, launch costs of Rs 8 crore and running costs of Rs 4 crore a year. What assets does it need to break even, who is the target investor, and how fast can it get there?

The fund breaks even on running costs at about Rs 571 crore of assets, and needs about Rs 952 crore to also earn back the launch cost within three years. On the sales plan it crosses break-even in about 25 months and repays the launch cost after about 71 months, nearly six years. The target is a first-time or conservative investor who wants one fund doing the allocation, reached through banks and advisers on monthly plans.

A new restaurant is not viable because the opening night is full; it is viable if enough diners come every week to pay the rent and staff. A fund's revenue is a small percentage of the assets it manages, while most of its costs are fixed, so the question is what size covers the fixed costs. Neelgagan keeps 0.7% of assets. Rs 4 crore of running cost divided by 0.007 is about Rs 571 crore: below that the fund loses money every year, whatever the launch looked like.

Run the plan month by month: Rs 250 crore at launch, Rs 10 crore of net inflows a month, and markets adding 10% a year. Assets reach about Rs 400 crore after a year and cross Rs 571 crore in about month 25; the launch cost is only earned back around month 71. In the first year the fund loses about Rs 1.7 crore on running costs on top of the Rs 8 crore spent at launch. A weak first year for markets, or inflows of Rs 5 crore a month instead of 10, would push both dates out by years, so the plan should be shown with a low case as well.

A multi-asset fund does the allocation for the investor, so it suits someone who does not want to choose between equity, debt and gold funds: a first-time investor starting a monthly plan, or a retired saver who wants moderate growth with smaller falls than an equity fund. The product sells through advice, not through performance tables, so distribution through banks and financial advisers, and the 0.5% they receive, is the engine of the break-even plan. Check two frameworks before launch: the current SEBI rules on what a multi-asset fund must hold and on expense ratio limits by fund size, and the tax treatment, which depends on the fund's equity share. Both change, and both shape the product.

Close with the viability test. Launch only if a credible low-case plan reaches break-even within about two to three years, and name what would make you close or merge the fund if it does not. A fund house with an existing adviser network and a hybrid fund track record can reach Rs 571 crore; one without either is buying an expensive option on its sales team.