Unlocking the Power of Multi Asset Funds
By Akhil Chugh
Date September 24, 2023
No more limiting to one, because it’s time to go for ‘three-in-one’!
A Multi-Asset fund is a hybrid mutual scheme that invests in three or more diverse asset classes simultaneously. Typically, these funds include equity, debt, and gold exposure, with some also incorporating real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).
Diversifying across various asset classes ensures resilience against the performance of a single class. When equities underperform, the debt portion may excel, and in times when both equities and debt struggle, gold may shine. Each asset class contributes distinct attributes to create a well-rounded asset allocation strategy, tailored to achieve financial goals in any market scenario.
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.
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 mutual funds offer flexibility in their allocation between equity and fixed income, adapting to various factors such as market conditions. Some Multi Asset Funds offer debt taxation whereas some Multi Asset Funds offer equity taxation. To determine if at least 65 percent of the fund is invested in equities, we calculate the annual average based on monthly allocations. Taxation for these funds varies based on their equity orientation.
For equity-oriented funds, the tax treatment is akin to standard equity funds. If held for over a year, gains qualify as long-term capital gains. However, gains exceeding Rs 1 lakh incur a 10 percent tax rate. If the holding period is one year or less, it’s considered a short-term capital gain, taxed at 15 percent.
In the case of non-equity-oriented funds, gains are classified as short-term capital gains if the holding period is less than three years, and they are added to the investor’s income, subject to their applicable income tax slab. For holdings exceeding three years, the gains are considered long-term capital gains and are taxed at 20 percent after accounting for indexation.
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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