Understanding Multi Asset Funds
By Akhil Chugh
Date November 6, 2022
No more limiting to one, because it’s time to go for ‘three-in-one’!
Multi Asset fund is a category within the hybrid mutual scheme offering wherein the fund invests in at least three or more different asset classes at the same time. Most of the funds in this category offer exposure to equity, debt and gold, while some others have also added real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) to the mix. With the rise in interest in international equity as a separate asset class, several fund houses have also added international equities and funds to the portfolio to make it geographically diversified.
Investing in a diverse portfolio ensures that you are not at the mercy of a single asset class. When your equity investments are not doing well, the debt part of the portfolio may be doing well. When both equity and debt are not doing well, probably gold may do well. When Indian equity is faring badly, international equity may be doing well. Thus, every asset class has a role to play and contributes its own set of properties to give us a final asset allocation suited to achieving financial goals in all market conditions.
How do Multi Asset Funds Work?
With asset allocation across different asset classes, Multi Asset Fund has the potential to deliver returns across all market conditions. This is because each asset class behaves differently in varied economic conditions. For example, it is very rare for both equity and debt investments to do equally well in the same period. Similarly, gold tends to do well when there is a gloomy outlook for the economy and all other asset classes are faring badly.
The fund manager chooses the right blend of asset mix based on the prevailing market conditions. This strategic asset allocation is decided by evaluating market situations and after understanding the role of each asset class. For example, Equity helps in potential wealth creation, gold may help in economic uncertainties by acting as a hedge against inflation while debt can offer stability to your investment portfolio.
Benefits of Multi Asset Funds:
Multi Asset Funds are a good choice for effective wealth creation planning. Some of its key benefits are:
1. Benefits of Diversification
A well-balanced food diet is one that has a variety of food items in it. Right? Similarly, investing in multiple asset classes can help you build a diversified portfolio.
Multi Asset Fund enables investors to expose their portfolio to different asset classes with various risk-reward factors. It facilitates investors to lower their overall risk and to derive steady earnings through different market conditions.
2. Rebalancing Portfolio
Rebalancing a portfolio is important to ensure that your investments are well distributed in those asset classes that are expected to generate more returns. Multi Asset Fund aims to help you sail through all the ups and downs of the market by letting the fund manager allocate and relocate your funds across various asset classes depending on where the growth potential lies.
3. Professional Curation
Many of us are home-grown investors, meaning we learn and invest based on our knowledge. Sometimes that works well, but many a time, our investment strategy can go awry. However, when you invest in Multi Asset Fund, you are already availing an expert’s services who concocted a multi-asset fund portfolio for you.
Here, you don’t have to choose how many equity instruments or debt instruments you should buy to balance your investment portfolio. Proper distribution of the best multiple-asset classes is automatically offered to you through this fund.
4. Risk Mitigation
Investing in a single asset class such as equity or debt is like putting all your eggs in one basket. When you do this, you surrender yourself entirely to market volatility. The only way to mitigate or reduce your risk exposure while earning substantial returns is by investing in varied instruments within the mutual fund economy. Multi-asset allocation funds provide one such opportunity.
5. Taxability
Multi-Asset Funds are more cost-efficient and tax-efficient compared to investments in individual assets. For equities, debt and gold – investors pay short-term capital gains tax and long-term capital gains tax. Multi-asset funds are taxed like equities as they maintain 65 per cent equity exposure. If one holds them for over a year, gains over Rs 1 lakh are taxed at 10 per cent. Short term gains are taxed at 15 per cent.
Key Takeaways from Net Brokers:
- Multi Asset Funds are known as– the “all-season” funds. However, while they aim to provide investors with steady returns in all market conditions, you should only invest in Multi Asset Funds if you are ready to stay invested for a long investment horizon.
- If you are a new investor unwilling to withstand present-day market volatility and with limited knowledge of different asset classes, SIP in Multi Asset Funds is ideal for you. These asset allocation funds can serve as risk-adjusted solutions.
- Multi Asset Funds are also the best category of mutual funds for passive investors who often do not want to rebalance their funds.
- Invest in Multi Asset Fund with an investment horizon of at least 5 years to earn the desired returns from your mutual fund investments.
Net Brokers always recommend investors to ensure that the investment objective and risk profile of funds is in sync with their desired goals and risk appetite.
Consult the Net Brokers team if you need any help in knowing the risk characteristics of a scheme or your risk profile.
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