When investing, as an investor many factors need to be considered depending upon the risk tolerance and risk appetite. Every individual investor has a flavour of its own risk tolerance which reflects in his or her portfolio. Many conservative investors' portfolios will reflect more investment towards Fixed Deposits, Bonds or even other saving schemes. More Moderate investors will have investments in Real Estate, gold and some investment in equity. The more risk-taking investor will have a major chunk invested towards Equity and the rest will be debt, gold or real estate. Every Individual investor will have more weightage towards the asset class which will define his or her risk-taking capacity. The ultimate problem with this is that none of them will have the right asset allocation.
As the age-old saying goes “Never put all the eggs in one basket” Every investor realizes the same and invests in all baskets but the mistake they commit here is that they will have more weight on any one single basket and less on the other basket. Investors have asset allocation just for name’s sake. No investor actually gives importance to asset allocation. The percentage allocation towards each asset class is of utmost importance. Each asset class has its own unique characteristic which comes with its own risk-to-reward ratio.
The message is very clear: Asset allocation is important.
Herein, the Muti-asset fund plays a pivotal role in an individual investor portfolio. It provides the right balance and proper allocation with timely shifting from one asset class to another asset class within the same fund. Also, known as the Tactical Asset Allocation strategy, it follows an active strategy that shifts asset allocation basis market trends and economic activities.
Overview
A multi-asset fund offers exposure to a broad number of asset classes, often offering a level of diversification typically associated with institutional investing.
Multi-Asset funds may invest in a number of traditional equity and fixed-income strategies, index-tracking funds, financial derivatives as well as commodities like gold.
This diversity allows portfolio managers to potentially balance risk with reward and deliver steady, long-term returns for investors, particularly in volatile markets.
Key Features:
Asset Allocation: This fund will invest in different asset classes like Equity and equity related instruments, Debt and Debt related instruments, Gold and Commodity ETFs, Arbitrage, Financial Derivatives and even REITs.
Diversification: This fund category provides an investor with a diversified portfolio among the different asset classes it invests in.
Flexibility: This fund provides flexibility to the fund manager to invest across asset classes depending on the current market conditions and economic activity. Thus, giving an edge to the fund manager to generate better risk-adjusted returns.
Higher Returns Potential: This fund has the potential to generate higher returns as it gets the advantage of a combination of different asset classes and different asset classes perform differently in different market situations.
Taxation: This fund by investing more than 65% in equity and equity-related products has the advantage of getting treated under an equity tax structure. Thus, lowering the tax liability on the investments.
Suitability: Long-term Investors will find this fund suitable as it will help to allocate the funds in different asset classes by investing in a single fund and generating better risk-adjusted returns.
Multi-asset allocation funds are suitable for investors looking for asset allocation in a single fund, want to invest in a diversified portfolio, have a moderate risk appetite, are looking for tax efficiency and need flexibility in the fund.
Asset-allocation pattern Multi-asset allocation fund would follow:
| Instruments | Indicative | Allocations | Risk Profile |
| | Minimum | Maximum | |
1. | Equity & Equity related instruments | 10 | 80 | High |
2. | Debt & money market instruments | 10 | 80 | Low to Medium |
3. | Gold/ Commodity ETFs | 10 | 80 | Low to Medium |
4. | Units issued by REITs /INvITs | 0 | 10 | Medium to High |
At any given time the fund will have a minimum 10% allocation in Equity, Debt & Gold.
So basically, multi-asset allocation funds are a one-stop solution for investors looking for investments across asset classes viz Equity, Debt, Gold and REITs. Wherein equity will provide capital appreciation, Debt aims to provide stability to the portfolio and Gold is a potential safe haven asset class which provides a hedge against inflation and currency depreciation. So, equity allocation will be higher when the market looks attractive and reduce the exposure in equity when the markets are expensive or highly volatile. So if you are looking for investment in Equity, Debt and Gold with a medium to long horizon you can look at investing in this category of mutual funds for building your wealth.
Investors should consult their Financial Advisors before investing and understand the suitability of the scheme.
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