Multiple asset allocation funds are balanced funds or asset allocation funds that must invest at least 10% of their assets in three asset classes: equities, debt and gold. These funds often include a mix of stocks, debt, and one or more asset classes, such as gold, real estate, and so on. These funds are popular for a well-balanced portfolio and an excellent track record of delivering risk-adjusted returns. As an investor, why should multi-asset allocation funds be part of your portfolio, LiveMint spoke to experts to get an answer to this.
Saurav Basu, Head of Wealth Management, Tata Capital
A multi-asset allocation fund should be part of a portfolio because of its ability to provide diversification across different asset classes, which helps spread risk and potentially increase returns. By investing in a multi-asset fund, investors can gain exposure to a mix of stocks, bonds, commodities and other assets (REITs) without the need to research and manage individual investments. This simplifies portfolio management and enables professional management by experienced fund managers who can adjust allocation based on market conditions to optimize returns and manage risk.
Currently, there are several multi-asset funds in the industry that follow different asset allocation strategies. Before investing, the investor should evaluate the fund's underlying investment strategy to choose the right fund according to risk appetite, investment horizon and liquidity needs.
Furthermore, the taxation of these funds varies and depends on the allocation of assets to a given regime. Thus, before investing, an investor must understand the placement of equity in the regime to assess tax liabilities (whether the regime falls under equity or non-equity taxation).
DP Singh, vice-MD e CBO, SBI Mutual Fund
The Multi Asset Allocation Funds are a good complement to an investment portfolio for investors looking for exposure to different asset classes managed by professionals. They provide diversification across asset classes that act as a hedge for the portfolio in case of a downside event for a particular asset class and save the investor the hassle of rebalancing his asset allocation according to changing market dynamics. If an investor makes these changes, switching investments from one instrument or scheme to another, capital gains taxes come into play. This is not the case when the fund manager rebalances the portfolio in these funds. Investors starting their investment journey can also consider multi-asset funds to familiarize themselves with the different asset classes available.
Siddharth Vora - Head of Investment Strategy and Fund Manager – PMS, Prabhudas Lilladher
Through last year's market narratives of geopolitical uncertainties, high inflation, tight monetary policies and slowing global growth – the underlying macro conditions gave us the conviction to identify a clear underlying investment approach: investing in multiple assets. Amid heightened macro uncertainty, rising yields and the Russia-Ukraine war, a diverse yet dynamic allocation across asset classes in our multi-asset portfolio, the MADP preserved capital when capital protection was the need of the hour. During this phase, the MADP continued to deliver on its core promise of consistency, low volatility and sustainable outperformance, helping our investors navigate the dynamic market landscape with peace of mind.”
“Over the last year, our performance can be attributed to a lower allocation to equities as we enter the May-June 2022 correction period. While we missed some of the post-June market rally, we covered the underperformance with an overweight gold as we approach november. Gold outperformed all other asset classes and continues to perform well. As we enter the new year, we begin increasing our allocation to international equities from 6% in November 2022 to 11% in January 2023.
Worst performers of 2022 - US and international equities started the year strong, recouping about 50% of last year's losses in the first 3 months of the new year. We also increased our allocation to long-term Gilt funds from 2.8% to 7% as the pace of rate increases slowed. In early April, we marginally increased our position in domestic equities due to fair valuations and improving macros. Amidst ever-changing market narratives and one of the most challenging and interesting years from an investor perspective, the MADP demonstrated resilience in terms of performance and the robustness of our quantitative-based investment framework and processes."
“With that, we are excited to enter a new market regime with improved macros and sentiment, to help MADP and its investors further grow their wealth sustainably through market cycles.
Balasubramanian, MD e CEO, Aditya Birla Sun Life AMC Ltd
It may be equivalent to looking into the crystal to be able to correctly predict market movement and to do so consistently is impossible. The future is difficult to predict, but a smart asset allocation strategy can protect a portfolio from the uncertainties of the future. Correlation data from longer periods indicate that investors with poorly correlated assets may benefit from lower risk returns. Asset Allocation balances risk reward by allocating capital to different asset classes. According to a study "Asset allocation is the main determinant of portfolio performance" and ~91.5% of returns can be attributed to asset allocation.
While balancing will not always produce gains, it will provide participation in better performing asset classes. The low correlation between asset classes is important for portfolio construction purposes as it uses these assets to reduce the overall volatility of portfolio returns. For example, there is very low correlation between these Fixed Income and Gold asset classes and therefore there is divergence in performance.
The Multi Asset Allocation Fund allows investors to invest across asset classes (equities, fixed income, gold/silver, REIT/INvit, international equities) to help build a diversified portfolio with the ability to generate capital appreciation over the long horizon. term with tax efficiency. Multi-Asset Allocation Funds strive to combine fixed income stability, gold cushioning and high growth potential of equities in one portfolio to help mitigate volatility in returns and enhance the investment experience. An actively managed equity portfolio can increase long-term return potential.
Ashish Naik, Equity Fund Manager, Axis Mutual Fund
As children, we all must have heard of the saying, 'Don't put all your eggs in one basket'. The same principle also applies to investing. Multi Asset Allocation Funds invest at least 10% of their portfolio in three different asset classes. In India, most fund houses have structured their funds to invest in domestic equities, debt and gold. Multi-Active Funds can be an ideal option for investors with a moderate risk appetite. Investors looking to diversify their portfolio by gaining exposure to an actively managed portfolio across a variety of asset classes (such as equities, debt, gold, etc.) under a single unified scheme may consider multi-asset allocation funds as a good option.
They aim to be equipped with a long-term, all-weather investment solution that has lower downside risk and is relatively less volatile due to its main benefit of diversification. Historically, no two asset classes function in sync with each other. Thus, when wealth is spread across multiple classes, the potential for earning risk-adjusted returns may be greater. In addition, investors may want to consider Multi-Active Funds, as they free investors from the hassle of putting money into multiple funds, proactively tracking them, and then adjusting the allocation in response to market changes or incremental flows. Essentially, they are presented with a ready-made portfolio with a balanced option of risk and potential rewards in just a single fund.
Multi-Active Funds also offer investors the option to automatically rebalance their portfolio. During volatile market phases that are difficult to navigate, portfolio rebalancing will be critical to keep up with the momentum. Finally, investors should also consider the various tax treatments associated with each asset class (individually, Fixed Income and Gold attract a higher tax rate).
When investing in a multi-asset fund, the investor is subject to a 10% tax rate plus applicable surcharge and health and education fee (assuming the investment is held for more than 1 year) compared to higher tax rates. highs that would apply if the investor invested in fixed income instruments or gold directly. Multi-asset funds can be an ideal solution for investors with a time horizon of (at least) more than three years. Investors who have a moderate risk appetite, but wish to diversify their holdings in order to achieve expected returns, may consider investing in Multi-Active Funds. We believe that the category will be well positioned in the next 5 to 7 years.
Paras Matalia, Fund Manager, SAMCO Mutual Fund
Multi-asset funds invest in a mix of asset classes such as stocks, bonds, gold and real estate, spreading risk across different markets. This combination provides diversification, which is crucial for risk management. Diversification helps mitigate the impact of volatility in any asset class, potentially reducing overall portfolio risk. These funds are primarily designed to adapt to changing market conditions.
Fund managers continuously monitor and adjust asset allocation based on market trends and economic indicators. This active management allows the fund to capture opportunities and navigate challenging market environments more effectively than individual investors. In addition, multi-asset allocation funds offer convenience and simplicity. They provide a single investment vehicle that automatically allocates assets across multiple markets, saving investors the time and effort required to research and manage individual asset classes. Furthermore, these funds cater to different investment objectives and risk profiles.
They offer a range of options, from conservative to aggressive, allowing investors to choose a fund that aligns with their specific objectives and risk tolerance. Therefore, including a multi-asset allocation fund in your portfolio offers diversification, active management, convenience, customization and professional expertise, making it an attractive choice for investors seeking a well-managed, balanced approach to investing.
Gautam Kalia, Sharekhan Senior Vice President and Lead Super Investor for BNP Paribas
Numerous studies over time have shown that portfolios with two or more asset classes offer superior risk-adjusted returns when compared to portfolios of a single asset class over long periods. Many additional studies highlight that asset allocation decisions are significantly more important than security selection when it comes to determining portfolio risk-adjusted return. Armed with this information, most investors should focus on building and maintaining a diversified investment portfolio across multiple assets.
The main advantages of multi-asset allocation funds are that they not only provide access to multiple assets, but also maintain linked exposure to different asset classes through active rebalancing. The mechanism of buying low and selling high is built in. For example, when stock markets are rising, asset allocation funds will book profits in stocks (sell on the rise) and reallocate them to other asset classes.
When equity markets are falling, these funds must buy more (buy the bearish) stocks by selling in other asset classes. Finally, these funds provide investors with access to this disciplined approach or asset rebalancing at a more cost and tax effective time when compared to doing it directly. All these factors make these funds an essential part of the core portfolio for investors.
Rahul Jain, President and Director, Nuvama Wealth
Asset allocation is critical in wealth creation. Contrary to popular belief, product selection and performance play a minor role. As markets are dynamic, investors must actively shift and rebalance asset allocation. Many investors fail to implement the asset allocation strategy because it requires experience, expertise, time and market data.
In this scenario, investors can benefit from multi-asset allocation funds that invest in stocks, debt and gold. All investors need to do is invest in these funds, and the fund takes care of the rest. Additionally, these funds eliminate the need to maintain separate equity, debt, and gold funds in the portfolio. In effect, the multi-asset allocation fund can become the investor's entire portfolio, and the return on the fund effectively becomes the return on the portfolio. This makes portfolio management simple and convenient.
Avinash Shekhar, founder and CEO, TaxNodes
Cultivating a diversified investment strategy is key to achieving long-term financial success, and incorporating a multi-asset allocation fund into your portfolio is a prudent choice. This approach harnesses the power of diversification across multiple asset classes, offering a host of benefits that can empower your investment journey.
First, a multi-asset allocation fund provides a solid foundation for risk management, spanning both traditional and virtual digital assets. By spreading investments across multiple asset classes such as stocks, bonds, commodities, real estate and cryptocurrencies, it minimizes the performance impact of any given investment on the overall portfolio. This built-in diversification helps protect against market volatility and reduces the potential for significant losses.
Additionally, including virtual digital assets in a multi-asset allocation fund allows you to tap into the potential of this emerging asset class. Virtual digital assets, mainly cryptocurrencies, have shown remarkable growth and have attracted the attention of investors around the world. By allocating a portion of your portfolio to these assets through a professionally managed fund, you can participate in the upside potential while mitigating some of the associated risks. In addition, multi-asset allocation funds are designed to adapt to changing market conditions.
Qualified fund managers actively monitor the market landscape, including evolving trends and regulations surrounding virtual digital assets, and make fund allocation adjustments based on their analysis and forecasts. This dynamic approach ensures that your investments are optimized for prevailing market trends, including the opportunities and risks presented by cryptocurrencies. Furthermore, a multi-asset allocation fund offers convenience and simplicity even when it comes to virtual digital assets.
Rather than individually managing and protecting a diverse pool of virtual digital assets, this fund consolidates them into a single investment vehicle, managed by professionals like TaxNodes with experience in the virtual digital asset space. This simplifies the investment process, saves time and reduces administrative burdens, while providing access to the potential of virtual digital assets.
Santosh Navlani, COO from ET Money
As the name implies, multi-asset allocation funds invest in multiple assets. In addition to stocks and debt, these assets often include gold and real estate/infrastructure investment trusts (REITs and InvITs). So the first benefit you get from them is diversification across asset classes – that too, without investing in multiple funds. As an investor, this greatly simplifies your job. You don't have to invest separately in an equity fund, a debt fund and a gold fund. Also, you don't have to worry about how much to allocate to each asset.
Along with exposure to multiple assets, these funds also have the inherent advantage of rebalancing. As various asset classes move at different rates, the fund manager rebalances the portfolio to optimize the fund's risk-return profile. Of course, this rebalancing has no tax implications for you. If you were rebalancing a portfolio comprised of individual funds, the resulting gains would be subject to tax, as applicable.
Then, with multi-asset allocation funds, you can reduce the chances of missing the rally entirely in an asset class. For example, if you haven't invested in gold in the last year, you've missed one of the best phases of this precious metal. I would argue that multi-asset allocation funds are also better positioned to weather the market storm compared to single-asset funds, thanks to their diversification across asset classes. This aspect can be of great help to retail investors, many of whom may find it difficult to stay invested when markets turn.
Shruti Jain, CSO, Arihant Capital
It's well established that the better you spread your investments across different assets, the less likely you are to incur a loss. Furthermore, it also maximizes your growth potential.
When building a portfolio, you have many options on where to invest your money, such as stocks, cash, bonds, commodities, and precious metals (like gold). Each of these asset classes behaves differently and reflects different risk and return characteristics. Markets tend to run in cycles and different markets can go up or down at different times. For example, when stocks are underperforming, gold prices may be rising and vice versa.
Investing in a multi-asset allocation fund creates a balance by parking funds across different sectors, geographies and asset types, leveraging multiple sources of potential growth. Thus capitalizing on different market cycles and opportunities. Furthermore, these funds also cater to different risk profiles and objectives.
In addition, they adapt to changing market conditions, with experienced managers actively adjusting the portfolio. This approach aims for consistent returns and effective navigation through market cycles. Multi-asset funds offer convenience by eliminating the need to manage individual assets
In a nutshell, including a multi-asset allocation fund in your portfolio offers diversification, growth potential, risk mitigation and adaptability to changing market conditions, while offering convenience and professional management experience.
Aniruddha Bose, Business Director, FinEdge
Mainly, we are not in favor of “bundled” investment solutions, such as multi-asset funds that aim to combine several types of investments in one basket. The reason is that it takes away the personalization that is the foundation of a successful financial plan.
While multi-asset funds have been positioned as a "convenient all-in-one" solution to investors' needs, the allocation to different asset classes within the multi-asset fund (equities, debt, gold, real estate) may or may not reflect your ideal asset allocation. based on your future goals.
For example, you might have two goals – your retirement, 25 years from now, and buying a car, 2 years from now. For the former, you ideally want to invest in a high-risk, high-return fund, such as a small- or mid-cap fund, in order to benefit the most from averaging and compounding the cost of the rupee. For the latter, it would be best to stick with an arbitrage fund that provides modest returns but guarantees the safety of your principal. For yet another purpose, perhaps a debt-oriented hybrid fund would be best suited.
But by bundling all these goals together and investing in a packaged solution like a multi-asset fund, the overall “purpose” of the investment gets blurred. This brings several behavioral biases to the fore and often ends up getting in the way of your investment journey. A much better approach would be to work with a financial planner, identify your specific goals, and then select different types of funds based on alignment to those specific goals. This would optimize risk/reward in your mutual fund portfolio, keeping emotions like greed and fear in check.
S. Ravi, promoter and managing partner, Ravi Rajan & Co. LLP
Navigating the complex world of investing requires a strategic approach that balances risk and reward. To achieve this delicate balance, including multi-asset allocation funds in your investment portfolio is a game changer. These funds, designed to spread investments across multiple asset classes, offer a myriad of benefits that are crucial to a complete and successful investment strategy.
Diversification:Multi-asset allocation funds offer the advantage of diversification by allocating investments across different asset classes such as stocks, bonds, commodities and real estate. By diversifying, investors can reduce the impact of market volatility and protect their portfolios from the pitfalls of relying only on a single asset class.
Risk management:Effective risk management is one of the cornerstones of investment success, and multi-asset allocation funds excel in this regard. By spreading investments across different asset classes, these funds can mitigate the risks associated with market fluctuations. The ability to balance exposure to volatile and stable assets ensures your portfolio remains resilient even during turbulent market conditions.
Capitalizing on opportunities:Multi-asset allocation funds allow investors to capitalize on growth opportunities. By diversifying investments across multiple assets, these funds can take advantage of favorable market conditions across different sectors. If one asset class underperforms, potential gains from other assets can offset losses and increase overall portfolio returns.
Professional experience:These funds are managed by seasoned investment professionals who have extensive experience in asset analysis and selection. These professionals have access to comprehensive research and market insights, enabling them to make informed investment decisions on behalf of investors.
Flexibility and adaptability: These funds offer flexibility and adaptability, allowing for adjustments based on market conditions and changing investor objectives. These funds can be actively managed, which means that asset allocation can be rebalanced to take advantage of emerging opportunities or mitigate risk. This dynamic approach ensures that your portfolio remains aligned with your investment goals and the ever-evolving market landscape.
Incorporating multi-asset allocation funds into your investment portfolio is a strategic move that offers crucial advantages. From diversification and risk management to capitalizing on growth opportunities and accessing professional expertise, these funds provide a robust foundation for long-term success. By embracing the power of multi-asset allocation funds, investors can navigate the complexities of the investment world with confidence, earning optimal returns while efficiently managing risk.
Arvinder Singh Nanda, Senior Vice President, Master Capital Services Ltd
The Multi-Asset Allocation Fund invests in multiple asset classes. According to SEBI guidelines, this fund must invest in at least 3 asset classes with a minimum allocation of 10% in each of them. These asset classes can be stocks, debt, gold, fixed income, commodities, real estate, etc.
Investing in this fund helps to increase and diversify your portfolio and reduce risk factors. Investors have a better opportunity to generate returns during a volatile market condition. Since it is less likely that all asset classes will perform similarly at the same time. Therefore, it ensures a steady stream of revenue and capital appreciation, even at times when some asset classes underperform.
Multi asset allocation funds are suitable for investors who want to allocate their funds across different asset classes or have a low risk appetite but want to earn stable returns on their investments. Investing in a multi-asset allocation fund now may be a good option due to uncertainty about the global economic outlook with concerns of US economic recession and inflation. Asset allocation plays an important role in uncertain economic conditions as it reduces portfolio volatility.
Arun Poddar- CEO, Choice International Limited
Multi-asset funds are just one example of how manufacturers are harnessing innovation and striving to offer investors best-in-class solutions as India's financial system goes through its golden age.
Risk diversification and mitigation through correlation analysis- Multi-asset allocation funds strategically invest in a diversified mix of asset classes such as stocks, bonds and cash equivalents. This diversification aims to reduce overall portfolio risk and protect investments during market downturns and volatility. By carefully selecting assets with low correlations, these funds can further reduce portfolio volatility. Rigorous research and analysis of historical correlations allow fund managers to build portfolios that offer more stable returns over time.
Tactical allocation based on economic indicators:multi-asset allocation funds utilize a tactical allocation strategy, allowing fund managers to make portfolio adjustments based on prevailing economic indicators and market conditions. In the event of an anticipated economic downturn, managers may decrease exposure to equities and increase the allocation to fixed income or cash, or in a high inflation environment, the allocation may be biased towards gold. Tactical allocation decisions are guided by research-backed economic indicators such as GDP growth, inflation, interest rates and consumer sentiment. These informed decisions have the potential to increase risk-adjusted returns for investors.
Hassle-free investment:For individual investors who may not have the time, knowledge or inclination to actively manage their portfolio, multi-asset allocation funds provide a streamlined investment solution. By investing in a single fund, you can gain exposure to a diverse mix of assets without the need for extensive research or ongoing decision making. This simplicity makes multi-asset allocation funds a suitable choice for those looking for a hands-on approach to investing.
Nishchay Nath, Fundador, Leaf Round
Multi-asset allocation funds offer diversification, expert managers, risk mitigation, market adaptability and access to a variety of assets through one investment. By spreading investments across conventional and unconventional assets, these funds reduce volatility and increase risk-adjusted returns, giving rise to stable returns through market cycles.
Professional fund managers' expertise in asset selection benefits investors with limited time or knowledge to actively manage their portfolios. Multi-asset allocation is an effective strategy for managing risk and seeking safer returns while outpacing inflation. These funds are also diversified through innovative assets such as peer-to-peer lending, invoice discounting and asset leasing, which generate high returns. These funds aim to maximize returns and minimize negative volatility, making them attractive to investors in the debt market and other investments.
Vinit Khandare, CEO and founder, MyFundBazaar
Consider investing in multi-asset allocation funds if you want low to moderate risk with consistent returns on your assets. Given the fact that multi-asset allocation funds help to balance the risk involved in investing in a particular asset class, the investor will continue to receive consistent returns even during periods of market volatility and underperformance from some of his other assets. .
Additionally, you may want to consider putting multi-asset allocation funds into your portfolio if you are a novice investor who wants to try investing in market-linked products or lack the expertise to independently manage a diversified portfolio. For added portfolio stability, even investors who can take a lot of risk can have some exposure to this instrument.
Madhu Lunawat, CIO do India Inflection Opportunity Fund
India is a growth market, presenting immense opportunities across all asset classes. The multi-asset allocation strategy, if implemented prudently, can generate alpha. From a risk perspective, the global geopolitical situation and economic uncertainties may have potential implications. While the impact in India is not expected to be relatively significant, it might be a better strategy to have a diversified portfolio of various assets.
Anup Bansal, co-fundador, Scripbox
The main reason investors include multi-asset allocation funds in their portfolio is the benefit of diversification, especially those new to the investment space. Multi-asset allocation funds provide diversification by investing in a variety of asset classes, such as equities (company shares), debt (bonds of various durations and credit risks) and gold. By spreading investments across different asset classes, these funds provide investors with diversification benefits without the investor having to worry about it.
Over the long term, diversification helps mitigate volatility and protects the investment portfolio from severe losses if one asset class underperforms. This is a good strategy, especially for investors who may lack the time and experience to manage their portfolios. They can leverage the expertise of professional fund managers to actively adjust the portfolio based on market conditions and potentially improve overall returns while managing risk.
Babita Rani Tax Consultant
Multi-asset allocation mutual funds are a good choice for investors who don't want to take a lot of risk, but still want a steady, predictable return on their money. If you have an investment horizon of more than three years, you might want to consider investing in these funds.
As a result, investors gain access to a diversified portfolio. The main objective of these mutual funds is to offer long-term capital appreciation to investors as a kind of return. Multi-asset allocation funds are an excellent option for anyone looking to diversify their portfolio by gaining exposure to multiple asset classes.
The main benefits of investing in a multi-asset allocation fund are as follows:
You are exposed to a well-diversified portfolio and there is little or no risk of concentration. It is well recognized that multi-asset allocation funds provide consistent returns over time.
Manuj Jain, Associate Director, Co-Head of Product Strategy, WhiteOak Capital AMC
Various asset classes have varying degrees of correlation with each other. Economic cycles and markets around the world are very dynamic and it is not possible to consistently time the winning asset class, but the right mix of various asset classes can help investors with their long-term financial goals.
Sunil Garg, Managing Director and Group Head of Research and Investments at Lighthouse Canton
The biggest attraction of multi-asset allocation funds is their ability to position themselves for all market environments. A good multi-asset allocation fund would ideally allocate strategically to capture cyclical opportunities, with greater coverage in financial markets and with lower portfolio volatility. This effectively increases risk-adjusted returns for investors.
Single asset class strategies are hostage to the general direction of the market in that asset class – something that a multi-asset class allocation overcomes through diversification and therefore lower correlations. For example, the ability to diversify into both long and short strategies helps generate returns over market cycles and reduces overall downside risk.
A side benefit of multi-asset allocation funds can be in the form of more tax-efficient returns, although this will vary depending on geography and duration of investment.
Himani Chaudhary, financial advisor
I recognize the importance of diversifying my investment portfolio across multiple securities. This is where a multi-asset fund can be considered for stable long-term returns.
A multi-allocation fund allocates investments across stocks, bonds, REITs and gold, ensuring a complete approach.
In times of economic growth, the stock and real estate portions tend to outperform, while in times of recession, gold and bonds shine. This risk-adjusted approach ensures a balanced portfolio, and periodic rebalancing allows for growth opportunities.
On average, multi-allocation funds delivered a five-year compound annual growth rate (CAGR) of around 11%, which is similar to the performance of the Nifty50 index.
For direct long-term equity exposure, invest in an index fund, while allocating more to debt and other assets through a multi-allocation fund. This strategy offers industry-wide exposure and benefits from different tax treatments for each fund.
Regardless of the scenario, it is crucial to be aware of your investment objectives and risk appetite. Make informed decisions and invest accordingly for a successful financial future.
Shavir Bansal, financial advisor
Most of us have heard the old wisdom of not putting all your eggs in one basket. With Investments, a Multi Asset Fund allows you to do just that without the extra hassle of finding different baskets to invest in. In addition to the obvious benefit of diversification, there are 2 benefits to investing in Multi-Active Funds
1) Downside Protection During Market Slumps. During market downturns, when stocks underperform, allocation increases to more defensive assets such as debt and gold, which are generally more stable and less volatile. This defensive positioning can help cushion the impact of market declines and reduce overall portfolio losses.
2) Tax benefits. With new taxation rules - Conservative Multiactive Funds can serve as an excellent alternative to traditional Debt Funds. Recently, the government removed indexation benefits for debt funds, gold ETFs and international mutual funds.
However, Multiactive Funds offer a solution. By allocating >35% to national equity and <65% balance to assets such as debt and REITs, multi-asset funds can retain the indexing advantage, provide lower volatility, and serve as an alternative to traditional debt funds. However, it is important to note that investors should carefully evaluate the specific fund's investment strategy, performance history and risk profile before making any investment decisions.
Karan Aggarwal, Chief Investment Officer, Elever
Despite all the talk about the benefits of asset diversification, most investors fail to benefit from it, as the investment decisions of the vast majority of retail investors are driven by recency bias and doubt. For example, at the height of bull markets, investors tend to get rid of gold debt and stocks and switch wholesale to stocks to improve returns.
On the other hand, at the bottom during a bear market, investors shun stocks and go into wholesale debt. These impulsive actions by investors are driven by psychological state of mind and a desire to time the market, which not only defeats the purpose of cross-asset diversification, but also takes a big chunk out of the return pie.
With multi-asset funds, retail investors have the opportunity to reap the benefits of cross-asset diversification with the help of professional managers who not only enforce discipline at the fund level, but also rule out any role for portfolio changes due to the psychological biases of individual investors.
Rajeev Singh, vice-presidente, Banco CSB
Multiactive funds invest in different asset classes, such as stocks, bonds, commodities, real estate, among others. By diversifying across multiple asset classes, you can potentially reduce the risk associated with a concentrated investment in a single asset or asset class. Diversification helps smooth volatility and protect your portfolio from significant losses in the event of a downturn in a given industry.
Shiv Parekh, founder hBits
Including a multi-asset allocation fund in your portfolio offers numerous advantages, making it a crucial component for investors looking for diversification, risk management and the potential for higher returns. These funds are designed to invest in a variety of asset classes, including stocks, bonds, commodities and real estate, with the aim of spreading risk across different markets and maximizing long-term growth.
Within multi-asset allocation funds, one option worth considering is fractional ownership in commercial real estate. Real estate has long been recognized as a stable, income-generating asset class, and fractional ownership allows investors to participate in this industry without requiring substantial capital or assuming property management responsibilities.
This model allows investors to earn a fixed rental income while benefiting from potential capital appreciation. Furthermore, this approach offers the added advantage of diversification within the property market itself, mitigating the risks associated with investing in just one property or location. Recent regulatory developments, such as SEBI's recognition and regulation of shared ownership platforms, have significantly increased investor protection, increased market liquidity and made real estate investing more accessible to retail investors.
This development reinforces the attractiveness and credibility of including fractional ownership in commercial real estate as part of a multi-asset allocation fund. By incorporating fractional ownership into commercial real estate, a multi-asset allocation fund offers investors a number of additional benefits, resulting in a more balanced portfolio. This approach offers the potential for consistent returns over the long term, while effectively reducing overall risk exposure.
Ashutosh Goyal, Founder and CEO of Flipshope
In today's fast-paced world, investing in a single stock doesn't do much for profits. The need to invest in multiple assets always arises and therefore a multi-asset allocation fund works as the icing on the cake. These assets offer a greater range of flexibility and exposure to a wider range of assets. Investing in mixed assets offers consistent returns over time to manage financial risks.
For effective asset management, informed investment decisions along with various assets can play a crucial role. If one has to achieve long-term investment goals with comparatively less risk exposure, a multi-asset allocation fund is the safest option.
“Diversification is the only free lunch in finance, and multi-asset allocation funds provide the dish.”
Ankush Bali, Financial Portfolio Manager - PGDBF | LIMRA | MDRT | AMFI REGISTERED
As the name suggests Multi, it gives exposure of the entire asset class. It is a wise decision for diversifying your funds. In some types of multi-fund funds, fees are also low. But it should be borne in mind when investing that this should not be the only fund to invest in. It's another diversification tool.
Rahul Pagidipathi, CEO, ZebPay
Diversification is a strategic approach that offers numerous benefits to investors. First, it minimizes risk by spreading investments across multiple asset classes, reducing vulnerability to market fluctuations. By not relying on just one investment, you mitigate the performance impact of any individual asset on your overall portfolio. Second, diversification allows capitalizing on different market opportunities, optimizing potential returns. It's a prudent strategy that aligns with the principle of not putting all your eggs in one basket. By diversifying your portfolio, you can achieve a more balanced, resilient and potentially rewarding investment outcome.
Multi-asset allocation funds are a good way to ensure that your portfolio is spread across different assets. While diversification is critical to achieving balanced returns over a sustained period, it is also important to note that one must be able to identify fundamentally strong assets with a competitive advantage. With regards to Crypto, we expect to see a scenario where Crypto assets are part of multi-asset allocation funds. More regulatory clarity will help both investors and the industry with potential growth opportunities.
Abhishek Banerjee, founder and CEO, Lotusdew
The mix of asset classes depends on different asset classes outperforming in different regimes. In a high-inflation environment, for example, floating rate and short-term debt outperform long-term government bonds, such as 10-year gilts in India.
An analogy could be a farmer owning a farm. Assets are crops that can be harvested at different times of the year and need patience. Also, the market price of your products during the season can fluctuate - for example, if there is an overproduction of potatoes, even if you have a large harvest, you may not get the right price.
The main objective of a multi-asset portfolio is to rely on cross-correlation of various asset classes. The main concern is that they might appear connected during market shifts. For example, in 2022 both bonds and stocks underperformed despite the fact that one should have supported the other. The only way to defend against this was to anticipate inflationary pressures and switch from traditional debt to adjustable rate allocation or use gold as a hedge.
With a multi-asset portfolio, you can manage volatility and thus build a portfolio that seeks a constant return year after year throughout the entire cycle. Based on your risk tolerance, a good financial planner can create a customized portfolio for you. Being involved in multiple asset classes also keeps you informed about all areas of the market and makes you more aware. The downside is that it can be difficult to separate tax planning into multiple funds. A single multi-asset fund takes care of asset allocation and fund selection for you; however, maintaining a single asset class portfolio requires very different skills than managing multi-asset funds. Knowing the background and experience of the fund manager in the management of multi-asset funds is fundamental.
Including a multiple asset allocation (MAF) fund in your portfolio can have a number of benefits. There are currently 11 schemes offered by various asset management companies (AMCs) specializing in MAFs. These funds allocate investments in equity, debt and real investments, providing diversification and exposure to multiple asset classes. The total Assets Under Management (AUM) in MAFs is approximately 29,419 crores. On average, these funds have an expense ratio of approximately 1.97%, which represents the fees charged by the fund for managing the portfolio. By investing in MAFs, investors can gain access to a professionally managed portfolio that targets a steady return over a full market cycle, while also benefiting from the expertise of fund managers experienced in multi-asset allocation.
Sonam Srivastava, Founder and CEO, Wright Research
Multi-asset allocation funds are essential in your investment portfolio due to their diversified and comprehensive nature. They allow you to reduce risk by investing in various asset classes such as stocks, bonds and commodities, balancing performance under different market conditions. Professionally managed, these funds optimize asset allocation, adjusting to market changes that individual investors may find challenging. They offer flexibility, allowing fund managers to switch between asset classes based on market sentiment, potentially improving returns. Ultimately, they offer convenience, saving investors the time and cost of investing in multiple asset classes separately. Therefore, multi-asset allocation funds can be a strategic component in achieving a complete investment portfolio.
Sreeram Ramdas, vice-president, Green Portfolio PMS
The multi-asset allocation fund is crucial to an investor's overall portfolio. These funds make tactical allocations to different asset classes, such as precious metals, bonds, stocks and real estate, depending on market cycles and macroeconomic factors. In precious metals, the allocation can be in Silver or Gold. In bonds, there are different types of obligations with short and long durations. In equities, the fund manager can allocate to a specific sector. All this depends on the manager's opinion and forecast about the macro environment.
A multi-asset fund can be a complement to your core stock portfolio. The excess cash that remains on the sidelines can be invested in these funds so that the investor has a high probability of overcoming inflation.
Gopal Kavalireddi, Head of Research, FYERS
No asset class can consistently and continuously deliver returns. As various macroeconomic factors affect stocks, debt, gold and real estate from time to time, it is imperative to take advantage of dynamic asset allocation. The multi-asset mutual fund effectively addresses these issues while competently managing risk. Flexible in adjusting their exposure, the portfolios capitalize on opportunities across multiple asset classes. This strategy results in potentially consistent returns while reducing risk to some extent.
The flexible nature of these portfolios responds well to changing market conditions, pursuing growth opportunities with timely rebalancing, sufficient diversification and risk management. According to the SEBI regulation, multi-asset funds must invest at least 10% in three asset classes. In India, most multi-asset funds invest in domestic equities, debt and gold, with real estate and international equities as other options.
Investors seeking portfolio diversification across multiple asset classes and long-term investment horizons can opt for multi-asset allocation mutual funds to meet their financial needs.
Sudarshan Lodha, co-founder and CEO of Strata
The multi-asset allocation fund diversifies investments into different asset classes such as stocks, bonds, real estate and commodities to effectively mitigate risk and protect investors' funds by limiting industry concentration. In situations where market volatility and economic fluctuations can present challenges, incorporating a multi-asset allocation fund offers a robust strategy that combines diversification and adaptability. When one asset class takes a dip, the other components can offset the losses, helping to stabilize the overall performance of your portfolio. This balanced approach can increase resilience and provide a smoother investment journey, reducing the impact of unpredictable market swings.
Professional fund managers can dynamically adjust the asset mix based on changing market conditions, economic policies and industry-specific opportunities. India is one of the fastest growing economies and also an emerging global industrial hub. With these economic developments, this fund has great potential to generate exceptional long-term returns.
ABOUT THE AUTHOR
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of experience in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is an expert in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman and also completed the Diploma in Journalism and Mass Communication (DJMC).
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