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Why should your portfolio contain a multi-asset allocation fund?


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Multi Asset Allocation Funds are balanced fund or asset allocation fund that must invest at least 10% of their assets in three asset classes: equity, debt, and gold. These funds often include a mix of equity, 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 multi asset allocation funds should be a part of your portfolio, LiveMint spoke to experts to get an answer to this.

Saurav Basu, Head – Wealth Management, Tata Capital

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CNBC-TV18

A multi-asset allocation fund should be part of a portfolio due to their ability to provide diversification across different asset classes, which helps to spread risk and potentially enhance 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 allows for professional management by experienced fund managers who can adjust the allocation based on market conditions, aiming to optimize returns and manage risk.

Currently, there are various multi asset funds in the industry which follow different asset allocation strategies. Before investing, an investor should evaluate the underlying investment strategy of the fund in order to choose the right fund as per the risk appetite, investment horizon and liquidity needs.

Also, the taxation of these funds varies and depends on the asset allocation for a particular scheme. Thus, before investing, an investor should understand the positioning of equity in the scheme to gauge the tax liabilities (whether the scheme falls under equity or non-equity taxation).

D.P. Singh, Deputy MD and CBO, SBI Mutual Fund

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Value Research

Multi Asset Allocation Funds make for a good addition to an investment portfolio of investors looking for exposure to different asset classes managed by professionals. They provide diversification across asset classes which acts as a hedge to the portfolio in case of a negative event for a particular asset class and saves the investor the hassle of rebalancing their asset allocation as per changing market dynamics. If an investor makes those changes, by switching investments from one instrument or scheme to another, capital gains taxes come in to play. This is not the case when the fund manager rebalances the portfolio in such funds. Investors beginning their investment journey can also consider multi-asset funds to familiarise themselves with different asset classes available.

Siddharth Vora - Head of Investment Strategy and Fund Manager – PMS, Prabhudas Lilladher

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Shankar Nath

Through last year’s market narratives of geopolitical uncertainties, high inflation, tight monetary policies, and slowing global growth – the underlying macro conditions gave us conviction to identify one clear underlying investment approach: Multi asset investing. Amidst elevated macro uncertainty, rising yields and Russia-Ukraine war, a diversified yet dynamic allocation across asset classes in our multi asset portfolio, MADP preserved the capital when capital protection was the need of the hour. Through this phase MADP has 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 last one year, our performance can be attributed to having lower allocation to equities as we entered the correction period of May and June 2022. Although we missed the some of market rally post June, we covered the underperformance by going overweight on Gold as we approached November. Gold outshined all other asset classes and continues to show good performance. As we entered the new-year, we started increasing our allocation in international equities from 6% in November 2022 to 11% by January 2023. 

The underperformers of 2022 – US and international equities started the year with a bang, recovering ~50% of last year's losses in first 3 months of the new year. We also increased our allocation in long duration Gilt funds from 2.8% to 7% as the pace of rate hikes slowed. Towards start of April, we marginally increased our position in domestic equities due to fair valuations and improving macros. Amidst the changing market narratives and one of the most challenging and interesting year from an investor's perspective, MADP has demonstrated resilience in terms of performance and robustness of our quant based Investment framework & processes."

“With this we are excited to enter a new market regime with improving macros and sentiment, to help MADP and its investors further compound their wealth sustainably through market cycles.

Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC Ltd

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PrimeInvestor

It may be equivalent to crystal gazing to be able to correctly predict the market movement and to do it consistently is impossible.  The future is hard to predict, but a smart asset allocation strategy can protect a portfolio from the uncertainties of the future. Longer period data of correlation indicates that investors with low correlated assets may benefit from returns with lower risks.  Asset Allocation balances risk reward by allocating capital to different asset classes. According to a study ‘Asset Allocation is the Key Determinant of Portfolio Performance’ & ~91.5% of returns can be attributed to Asset Allocation.  

While balancing may not always produce gain, it will provide participation in better performing asset classes. Low correlation amongst asset classes is important for portfolio construction purpose as it utilizes these assets to reduce the overall volatility of the portfolio returns. For example, there is a very low correlation amongst these Equity, Fixed Income and Gold assets classes and therefore there is divergence in the performance.  

Multi Asset Allocation Fund enables the investors to invest across asset classes (Equity, Fixed Income, Gold/Silver, REIT/INvit, International Equity) to help build a diversified portfolio with the ability to generate capital appreciation over long term horizon with tax efficiency. Multi Asset Allocation Funds endeavours to combine stability of fixed income, cushioning of gold and the high growth potential of equity in one portfolio to help mitigate volatility in returns and improve investing experience. Actively managed equity portfolio may enhance long term return potential.

Ashish Naik, Equity Fund Manager, Axis Mutual Fund

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Jarrad Morrow

As kids, we must have all heard of the adage, ‘Don’t put all your eggs in one basket’. The same principle applies for investing as well. Multi Asset Allocation Funds invest at least 10% of their portfolio in three distinct asset classes. In India, most fund houses have structured their funds to invest in domestic equities, debt and gold. Multi Asset Funds can be an ideal option for investors who have a moderate risk appetite. Investors looking to diversify their portfolio by gaining exposure to an actively managed portfolio across a variety of asset classes (like equity, debt, gold etc.) under a single unified scheme may consider multi-asset allocation funds as a good option. 

They aim to be equipped with an all-weather long-term investing solution that has lower downside risk and is relatively less volatile due to its core benefit of diversification. Historically, no two asset classes have been known to perform in sync with each other. Thus, when wealth is spread across various classes, the potential of earning risk-adjusted returns may be higher. Furthermore, investors may consider Multi Asset Funds since they free the investors from the hassle of putting money into multiple funds, proactively tracking them and then, adjusting 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 one single fund. 

Multi Asset Funds also provide investors the option to automatically re-balance their portfolio. During volatile market phases that are difficult to navigate, rebalancing the portfolio will be instrumental in keeping up with the momentum. Lastly, investors have to also consider the various tax treatments associated with each asset class (Individually, Fixed Income and Gold attract a higher rate of taxation). 

While investing in a Multi Asset Fund, an investor is liable to a tax rate of 10% plus applicable surcharge and health and education cess (assuming investment is held for more than 1 year) compared to higher tax rates that would have been applicable had the investor invested in fixed income instruments or gold directly. Multi asset funds may be an ideal solution for investors with a time horizon of (at least) more than three years. Investors who have a moderate risk appetite yet wish to diversify their holdings with the aim to potentially achieve expected returns, may consider investing in Multi Asset Funds. We believe the category will be well placed over the next 5-7 years.

Paras Matalia, Fund Manager, SAMCO Mutual Fund

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Multi-asset funds invest in a combination of asset classes such as stocks, bonds, gold, and real estate, spreading risk across different markets. This combination provides diversification, which is crucial for managing risk. Diversification helps to mitigate the impact of volatility in any one asset class, potentially reducing the overall portfolio risk. These funds are primarily designed to adapt to changing market conditions. 

Fund managers continuously monitor and adjust the allocation of assets 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. Moreover, multi-asset allocation funds offer convenience and simplicity. They provide a single investment vehicle that automatically allocates assets across various markets, saving investors the time and effort required to research and manage individual asset classes. Additionally, these funds cater to different investment objectives and risk profiles. 

They offer a range of options, from conservative to aggressive, enabling investors to choose a fund that aligns with their specific goals and risk tolerance. Therefore, including a multi-asset allocation fund in your portfolio offers diversification, active management, convenience, customization, and professional expertise, making it a compelling choice for investors seeking a balanced and well-managed investment approach.

Gautam Kalia, Senior VP and Head Super Investor at Sharekhan by BNP Paribas

VIDEO: Multi Asset Funds: Are They As Great As They Sound? | ETMONEY
ET Money

Numerous studies over time have demonstrated that portfolios with two or more asset classes deliver superior risk adjusted returns when compared with single asset class portfolios over long periods. Further many studies highlight that asset allocation decisions are significantly more important than security selection when it comes to determining the risk adjust return of the portfolio. Armed with this information, most investors should focus on building and maintaining an investment portfolio that is diversified across multiple assets. 

The key advantages of multi asset allocation funds are that not only do they provide access to multiple assets, they also maintain a range bound exposure to the different asset classes through active rebalancing. The buy low and sell high mechanism is in built. For example, when equity markets are rallying, asset allocation funds will book profits in equity (sell high) and reallocate them to other asset classes. 

When equity markets are falling, these funds shall buy more (buy low) in equity by selling in other asset classes. Finally, these funds provide access to investors to this disciplined approach or asset rebalancing at a more effective cost and taxation when compared to doing this directly. All these factors make these funds an essential part of the core portfolio for investors.

Rahul Jain, President and Head, Nuvama Wealth

VIDEO: What are Multi-Asset Funds? | Choosing the right Multi-Asset Fund | ET Money
ET Money

Asset allocation is critical in wealth creation.  Contrary to popular belief, product selection and performance play a minor role. Because markets are dynamic, investors must actively change and rebalance asset allocation. Many investors fail to implement the asset allocation strategy because it requires experience, expertise, time, and market data. 

In such a scenario, investors can benefit from multi-asset allocation funds that invest in equity, debt, and gold. All Investors have to do is invest in these funds, and the fund takes care of the rest.  Furthermore, these funds eliminate the need to hold separate equity, debt, and gold funds in the portfolio.  In fact, the multi-asset allocation fund can become the investor's entire portfolio, and the fund's return effectively becomes the portfolio return. It makes portfolio management simple and convenient.

Avinash Shekhar, Founder & CEO, TaxNodes

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Cultivating a diversified investment strategy is key to achieving long-term financial success, and incorporating a multi-asset allocation fund in your portfolio is a prudent choice. This approach harnesses the power of diversification across various asset classes, offering a range of benefits that can bolster your investment journey. 

First and foremost, a multi-asset allocation fund provides a strong foundation for risk management, encompassing 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 impact of any one investment's performance on the overall portfolio. This built-in diversification helps to cushion against market volatility and reduces the potential for significant losses. 

Moreover, 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, particularly cryptocurrencies, have shown remarkable growth and have captured the attention of investors worldwide. By allocating a portion of your portfolio to these assets through a professionally managed fund, you can participate in the potential upside while mitigating some of the associated risks. Additionally, multi-asset allocation funds are designed to adapt to changing market conditions. 

Skilled fund managers actively monitor the market landscape, including the evolving trends and regulations surrounding virtual digital assets, and make adjustments to the fund's allocation based on their analysis and forecasts. This dynamic approach ensures that your investments are optimized for prevailing market trends, including the opportunities and risks posed by cryptocurrencies. Furthermore, a multi-asset allocation fund offers convenience and simplicity, even when it comes to virtual digital assets. 

Instead of individually managing and securing a diverse set of virtual digital assets, this fund consolidates them into a single investment vehicle, managed by professionals like TaxNodes with expertise 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, of ET Money

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warikoo

As their name implies, multi-asset allocation funds invest in multiple assets. Apart from equity and debt, these assets often include gold and real-estate/infrastructure investment trusts (REITs & InvITs). So, the first benefit you derive from them is diversification across asset classes – that too, without investing in multiple funds. As an investor, that simplifies your job a lot. You need not separately invest in an equity fund, a debt fund and a gold fund. Plus, you need not worry about how much to allocate to which asset.

Along with exposure to multiple assets, these funds have the inherent advantage of rebalancing as well. As various asset classes move at different rates, the fund manager rebalances the portfolio to optimise the fund’s risk–return profile. Of course, this rebalancing has no tax implications for you. If you were rebalancing a portfolio comprising individual funds, the resulting gains would be subject to taxes, as applicable.

Next, with multi-asset allocation funds, you can reduce the chances of entirely missing out on the rally in an asset class. For instance, if you were not invested in gold over the last one year, you have missed out on one of the best phases of this precious metal.I would say that multi-asset allocation funds are also better positioned to weather the market storm as 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 challenging to stay invested when the markets turn turtle.

Shruti Jain, CSO, Arihant Capital

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Akshat Shrivastava

It’s well established that the better you spread your investments across different assets, the less likely you are to experience a loss. Plus, it also maximises your growth potential.

When you’re building a portfolio, you have a lot of choices about where to invest your money, like  equities, 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 work in cycles, and different markets may go up or down at different times. For example, when stocks are performing poorly, gold prices may be rising, and vice versa.

Investing in a multi-asset allocation fund creates a balance by parking the funds across different sectors, geographies, and asset types, tapping into various sources of potential growth. Thus capitalising on different market cycles and opportunities. Moreover, these funds also cater to different risk profiles and goals.

Also, 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 for individual asset management

In a nutshell, including a multi-asset allocation fund in your portfolio provides diversification, growth potential, risk mitigation, and adaptability to changing market conditions, all while offering convenience and professional management expertise.

Aniruddha Bose, Chief Business Officer, FinEdge

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Rob Berger

Principally, we are not in favour of “packaged" investment solutions such as multi-asset funds that aim to combine various types of investments into one basket. The reason is that this takes away from the customization that is the cornerstone of a successful financial plan. 

While multi-asset funds have been positioned as a “convenient, one-stop-shop" solution to investor needs, the allocation to different asset classes within the multi-asset fund (equity, debt, gold, real estate) may or may not reflect your ideal asset allocation based on your future goals. 

For instance, you may have two goals – your retirement, which is 25 years away and buying a car, which is 2 years away. For the former, you would ideally want to invest into a high risk, high return fund like a small cap or a mid-cap fund in order to benefit the most from rupee cost averaging and compounding. For the latter, you would be better off sticking with an arbitrage fund that provides modest returns but assures the safety of your principal. For yet another goal, perhaps a debt-oriented hybrid fund would be most suitable. 

But by lumping all these objectives together and investing into a packaged solution like a multi asset fund, the overall “purpose" of investing gets muddled. This brings several behavioural biases to the fore and often ends up derailing your investing journey. A far 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 objectives. Doing this would optimize the risk/reward in your mutual fund portfolio while keeping emotions such as greed and fear in check. 

S. Ravi, Promoter & Managing Partner, Ravi Rajan & Co. LLP

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Navigating the complex world of investments requires a strategic approach that balances risk and reward. To achieve this delicate equilibrium, including multi-asset allocation funds in your investment portfolio is a game-changer. These funds, designed to spread investments across various asset classes, offer a myriad of benefits that are crucial for a well-rounded and successful investment strategy.

Diversification: Multi-asset allocation funds provide 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 solely on a single asset class.

Risk Management: Effectively managing risk is a cornerstone of investment success, and multi-asset allocation funds excel in this aspect. By distributing investments across different asset classes, these funds can mitigate risks associated with market fluctuations. The ability to balance exposure to volatile and stable assets ensures that your portfolio remains resilient, even during turbulent market conditions.

Capitalizing on Opportunities: Multi-asset allocation funds enable investors to capitalize on opportunities for growth. By diversifying investments across various assets, these funds can seize favourable market conditions across different sectors. If one asset class underperforms, the potential gains from other assets can offset losses and enhance overall portfolio returns.

Professional Expertise: These funds are managed by seasoned investment professionals who possess extensive expertise in analyzing and selecting assets. These professionals have access to comprehensive research and market insights, allowing 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, meaning the asset allocation can be rebalanced to take advantage of emerging opportunities or mitigate risks. This dynamic approach ensures that your portfolio remains aligned with your investment goals and the ever-evolving market landscape.

Incorporating multi-asset allocation funds in your investment portfolio is a strategic move that provides crucial advantages. From diversification and risk management to capitalizing on growth opportunities and accessing professional expertise, these funds offer 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, achieving optimal returns while effectively managing risk.

Arvinder Singh Nanda, Senior Vice President, Master Capital Services Ltd

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Marko - WhiteBoard Finance

Multi-Asset Allocation Fund invests in multiple asset classes. According to SEBI guidelines, it is necessary for this fund to invest in at least 3 asset classes with a minimum allocation of 10% in each of them.  These asset classes could be equity, debt, gold, fixed income, commodities, real estate etc. 

Investing in this fund helps in enhancing and diversifying your portfolio and reducing risk factors. Investors have a better opportunity to generate returns during a volatile market condition. Since it is less likely that all asset classes perform in a similar manner at the same time. Therefore, it ensures a steady flow of income and capital appreciation even at times when some asset classes are underperforming than usual. 

Multi-asset allocation funds are suitable for investors who want to allocate their fund to different asset classes or have a low-risk appetite but wants to earn steady returns on their investment. Investing in a Multi-asset allocation fund now can be a good option because of the uncertainty about the global economic outlook with concerns of economic recession in the US and inflation. Asset allocation plays an important role in uncertain economic conditions since it reduces portfolio volatility.

Arun Poddar- CEO , Choice International Limited

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Multi-Asset funds are just one example of how manufacturers are tapping into innovation and striving to offer investors the best-in-class solutions as India's financial system traverses its golden phase.

Diversification & Risk mitigation through correlation analysis - Multi-asset allocation funds strategically invest in a diversified mix of asset classes like stocks, bonds, and cash equivalents. This diversification aims to lower the overall portfolio risk and shield investments during market downturns and volatility. By carefully selecting assets with low correlations, these funds can potentially reduce portfolio volatility further. Rigorous research and analysis of historical correlations enable fund managers to construct 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 economic indicators and prevailing market conditions. In the event of an anticipated economic slowdown, the managers may decrease exposure to equities and increase allocation to fixed income or cash, or in a high inflation environment allocation can be tilted towards gold. Tactical allocation decisions are guided by research-supported economic indicators like GDP growth, inflation, interest rates, and consumer sentiment. These informed decisions have the potential to enhance risk-adjusted returns for investors.

Hassle-Free Investing: For individual investors who may not have the time, knowledge, or inclination to actively manage their portfolio, multi-asset allocation funds provide a simplified investment solution. By investing in a single fund, you can gain exposure to a diversified 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 seeking a hands-off approach to investing.

Nishchay Nath, Founder, Leaf Round

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Multi asset allocation funds offer diversification, expert managers, risk mitigation, market adaptability, and access to a range of assets through one investment. By distributing investments across conventional and unconventional assets, these funds reduce volatility and enhance risk-adjusted returns giving rise to stable income across market cycles. 

Expertise of the professional fund managers in asset selection benefits the investors with limited time or knowledge to actively manage their portfolios. Multi-asset allocation is an effective strategy to manage risk and pursue safer returns while beating inflation. These funds are also diversified through innovative assets like peer-to-peer lending, invoice discounting, and asset leasing, which yield high returns. These funds aim to maximize returns and minimizing downside volatility, making them attractive to investors in the debt market and other investments.

Vinit Khandare, CEO and Founder, MyFundBazaar

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Consider investing in multi-asset allocation funds if the investor wants low to moderate risk with consistent returns on their assets. Given the fact that multi-asset allocation funds assist in balancing 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 for some of their other assets.

Additionally, you might think about putting multi-asset allocation funds in your portfolio if you're a novice investor who wants to try their hand at investing in market-linked products or don't have the knowledge to independently manage a diversified portfolio. For enhanced portfolio stability, even investors who can take on a lot of risk can have some exposure to this instrument.

Madhu Lunawat, CIO of India Inflection Opportunity Fund

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India is a growing market, presenting immense opportunities across asset classes. Multi-asset allocation strategy, if deployed prudently, can generate alpha. From risk perspective, the global geopolitical situation and economic uncertainties could have potential implications. Although the impact on India is expected to be relatively not significant, it could be a better strategy to have a multi-asset diversified portfolio.

Anup Bansal, Co-founder, Scripbox

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The primary reason for investors to include multi-asset allocation funds in their portfolio is the benefit of diversification, especially those new to the investing space. Multi-asset allocation funds provide diversification by investing in a variety of asset classes such as equity (company stocks), debt (bonds of various duration and credit risk), and gold. By spreading investments across different asset classes, these funds provide investors benefits of diversification without the investor having to worry about it. 

In the long run, 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 not have the time and expertise to manage their portfolios. They can leverage the expertise of professional fund managers to actively adjust the portfolio based on market conditions and potentially enhance overall returns while managing risk. 

Babita Rani Tax Consultant 

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Mutual funds with a multi-asset allocation are a good option for investors who don't want to take on a lot of risk but still want to see a steady and predictable return on their money. If you have a longer than three-year investment horizon, you might think about investing in these funds.

Investors gain access to a diverse portfolio as a result. These mutual funds' primary goal is to deliver long-term capital appreciation to investors as a kind of return. Multi-asset allocation funds are an excellent choice for anyone wishing to diversify their portfolio by getting exposure to a number of asset classes.

The principal benefits of investing in a multi-asset allocation fund are as follows:

You are exposed to a well-diversified portfolio, and there is little to no concentration risk. It is well recognised that multi-asset allocation funds provide consistent returns over time.

Manuj Jain, Associate Director, Co-Head Product Strategy, WhiteOak Capital AMC

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Mutual Funds at Groww

Various Asset Classes have varied Degree of Correlation with each other. Economic Cycles and Markets across the globe are very dynamic and it is not possible to consistently time the winning asset class, but a right mix of various asset classes may help investors in their long-term financial goals.

Sunil Garg, Managing Director & Group Head- Research and Investments at Lighthouse Canton

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Tae Kim - Financial Tortoise

The biggest attraction of multi-asset allocation funds is the ability to position for all market environments. A good multi-asset allocation fund would ideally allocate strategically to capture cyclical opportunities, with greater breadth across financial markets and with lower portfolio volatility. This effectively enhances risk adjusted returns for investors. 

Single asset class strategies are a hostage to overall market direction in that asset class – something a multi-asset class allocation overcomes through diversification and hence lower correlations. For example, the ability to diversify into both long and short strategies helps to generate returns across market cycles and lower overall drawdown risk. 

A side benefit of multi-asset allocation funds could be in the form more tax efficient returns although that varies depending on geography and investment duration.

Himani Chaudhary, financial advisor

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Investing Made Simple - Nathan Sloan

I recognize the significance of diversifying my investment portfolio across various securities. That's where a multi asset fund can be considered for stable returns over the long term.

A multi allocation fund allocates investments among stocks, bonds, REITs, and gold, ensuring a well-rounded approach. 

During times of economic growth, the equity 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 have provided a compounded annual growth rate (CAGR) of around 11% over five years, which is similar to the performance of the Nifty50 index.

For long-term direct equity exposure, invest in an index fund, while allocating more to debt and other assets through a multi allocation fund. This strategy provides exposure to the entire industry and benefits from different tax treatments for each fund.

Regardless of the scenario, it's crucial to be aware of your investment goals and risk appetite. Make informed decisions and invest accordingly for a successful financial future.

Shavir Bansal, financial advisor

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Most of us have heard the age old wisdom of not putting all your eggs in a single basket. With Investments, a Multi Asset Fund lets you do just that without the additional work of finding different baskets to invest in. Besides the obvious benefit of diversification, there are 2 benefits of investing in Multi Asset Funds 

1) Downside Protection during Market Downturns. During market downturns, when equities underperform, the allocation increases to more defensive assets like Debt and Gold, which are generally more stable and less volatile. This defensive positioning can help cushion the impact of market declines and reduce the overall portfolio losses. 

2) Tax benefits. With new taxation rules - Conservative Multi Asset Funds could 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, Multi Asset Funds offer a solution. By allocating >35% to Domestic Equity and the balance <65% across assets like Debt and REITs, Multi Asset Funds can retain the indexation advantage, provide lower volatility, and serve as an alternative to traditional Debt Funds. However, It's important to note that investors should carefully assess the specific fund's investment strategy, performance track record, and risk profile before making any investment decisions.

Karan Aggarwal, Chief Investment Officer, Elever

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Yadnya Investment Academy

For all the talk around the benefits of asset diversification, most investors fail to benefit from the same as the investment decisions of a big majority of retail investors are driven by recency bias and self-doubt. For example, at the peak of bull markets, investors tend to get rid of debt and gold equity and shift wholesale towards equity to improve returns. 

On the other hand, at the bottom during a bear market, investors shun equities and move wholesale into debt. These impulsive actions of investors are driven by the psychological state of mind and urge to time the market which not only defeats the purpose of cross-asset diversification but also takes a big bite 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 on account of the psychological biases of individual investors. 

Rajeev Singh, Vice President, CSB Bank

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NDTV Profit

Multi-asset funds invest in a variety of asset classes, such as stocks, bonds, commodities, and 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 to smooth out volatility and protect your portfolio from significant losses in case of a downturn in a particular sector.

Shiv Parekh, Founder hBits

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ET NOW

Including a multi-asset allocation fund in your portfolio offers numerous advantages, making it a crucial component for investors seeking diversification, risk management, and the potential for higher returns. These funds are designed to invest in a range of asset classes, including stocks, bonds, commodities, and real estate, with the objective of spreading risk across different markets and maximising long-term growth. 

Within the realm of multi-asset allocation funds, one option worth considering is fractional ownership in commercial real estate. Real estate has long been recognised as a stable and income-generating asset class, and fractional ownership allows investors to participate in this sector without requiring substantial capital or assuming property management responsibilities.

This model enables investors to earn a fixed rental income while benefiting from potential capital appreciation. Moreover, this approach offers the added advantage of diversification within the real estate market itself, mitigating the risks associated with investing solely in one property or location. Recent regulatory developments, such as SEBI's recognition and regulation of fractional ownership platforms, have significantly enhanced investor protection, increased market liquidity, and made real estate investment 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 in commercial real estate, a multi-asset allocation fund provides investors with a host 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 & CEO of Flipshope

VIDEO: Secure your portfolio with Multi Asset Mutual Fund
Hindustan Times

In today's fast pacing world, investing in a single share doesn't help with profits much. There always arises the need to invest in multiple assets and for that reason a multi asset allocation fund acts like icing on the cake. These assets offer a higher range of flexibility and an exposure to a broader range of assets. Investment in mix assets deliver consistent returns over time so as to manage financial risks. 

For an effective management of the assets, informed investment decisions along with multiple assets can play a crucial role.  If someone has to attain long term investment objectives with comparatively less exposure to risks, a multi asset allocation fund is the safest go-to option. 

“Diversification is the only free lunch in finance, and multi-asset allocation funds provide the plate."

Ankush Bali, Financial Portfolio Manager- PGDBF | LIMRA | MDRT | AMFI REGISTERED

VIDEO: Why should you invest in WhiteOak Capital Multi Asset Allocation Fund?
WhiteOak Capital

As the name suggests Multi, It gives exposure of all the asset class. It is a wise decision for diversification of your funds. In some of the mutli cap fund type charges are low as well. But one should keep in mind while investing this should not only be the fund to invest in. It's another tool of diversification.

Rahul Pagidipati, CEO, ZebPay

VIDEO: Asset Allocation | What You Need To Know
Tae Kim - Financial Tortoise

Diversifying is a strategic approach that offers numerous benefits to investors. Firstly, it minimizes risk by spreading investments across various asset classes, reducing vulnerability to market fluctuations. By not relying solely on one investment, you mitigate the impact of any individual asset's performance on your overall portfolio. Secondly, diversification allows you to capitalise on different market opportunities, optimizing potential returns. It is a prudent strategy that aligns with the principle of not putting all your eggs in one basket. By diversifying your portfolio, one 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 see balanced returns over a sustained period, It is also important to note that one should be able to identify fundamentally strong assets with a competitive edge. With respect to Crypto, we hope 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 & CEO, Lotusdew

VIDEO:

Combining asset classes is dependent on distinct 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 who owns a farm. The assets are crops that can be harvested at different times of the year and need patience. Also, the market price for your goods over the season may vary - for example, if there is an overproduction of potatoes, even though you have a big crop, you may not get the correct price.

The main goal of a multi-asset portfolio is to rely on the cross-correlation of several asset classes. The primary concern is that they may appear connected during market dislocations. For example, in 2022, both bonds and equity performed inadequately, despite the fact that one should have supported the other. The only way to defend against this was to foresee inflationary pressures and shift from traditional debt to adjustable-rate allocation or to use gold as a hedge.

With a multi-asset portfolio, you may manage volatility and hence construct a portfolio that seeks a steady return year after year across the entire cycle. Based on your risk tolerance, a good financial planner can create a customized portfolio for you. Being engaged in several asset classes also keeps you educated on all areas of the market and makes you more aware. The disadvantage is that unbundling tax planning into multiple funds might be tough. A single multi-asset fund handles asset allocation and fund selection for you; nevertheless, maintaining a single asset class portfolio requires very different abilities than managing multi-asset funds. Knowing your fund manager's track record and experience managing multi-asset funds is critical.

Including a multi-asset allocation fund (MAF) in your portfolio can provide several benefits. Currently, there are 11 schemes offered by various asset management companies (AMCs) that specialize in MAFs. These funds allocate investments across equity, debt, and real investments, providing diversification and exposure to multiple asset classes. The total assets under management (AUM) in MAFs amount to approximately 29,419 crores. On an 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 constant return over a full market cycle, while benefiting from the expertise of fund managers experienced in multi-asset allocation.

Sonam Srivastava, Founder & CEO, Wright Research

VIDEO:

Multi-asset allocation funds are essential in your investment portfolio due to their diverse and comprehensive nature. They allow for risk reduction by investing across various asset classes such as equities, bonds, and commodities, balancing performance during different market conditions. Managed by professionals, these funds optimize asset allocation, adjusting to market changes which individual investors may find challenging. They provide flexibility, enabling fund managers to switch between asset classes based on market outlook, potentially improving returns. Lastly, 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 well-rounded investment portfolio.

Sreeram Ramdas, Vice President, Green Portfolio PMS

VIDEO:

Multi asset allocation fund is crucial for an investor’s overall portfolio. These funds make tactical allocations to different asset classes like precious metals, bonds, equities and real estate depending on market cycles and macro-economic factors. In precious metals, allocation can be towards Silver or Gold. In bonds, there are different types of bonds with short and long durations. In equities, the fund manager may allocate to a specific sector. This all depends on the manager's opinion and forecast about the macro environment.

A multi-asset fund can be a compliment to your core equity portfolio. The excess cash sitting on the sidelines can be deployed in these funds so that the investor has a high probability of beating inflation.

Gopal Kavalireddi, head of research, FYERS

VIDEO:

No single asset class can deliver returns consistently and continuously. As various macroeconomic factors impact equities, debt, gold and real estate from time to time, it is imperative to take advantage of a dynamic asset allocation. Multi-asset mutual fund effectively addresses these issues while managing risk competently. Flexible in adjusting their exposure, the portfolios take advantage of opportunities across various asset classes. This strategy results in potentially consistent returns while reducing risk to a certain extent. 

The flexible nature of such portfolios responds well to the ever-changing market conditions, seeking opportunities for growth with timely rebalancing, sufficient diversification and risk management. As per 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 through multiple asset classes and long-term investment horizons can opt for multi-asset allocation mutual funds to address their financial needs. 

Sudarshan Lodha, Co-founder and CEO, Strata

VIDEO:

Multi-asset allocation fund diversifies the investments across different asset classes, such as stocks, bonds, real estate, and commodities to effectively mitigate risk and protect investor funds by limiting sector concentration. In situations, where market volatility and economic fluctuations can present challenges, incorporating a multi-asset allocation fund provides a robust strategy that combines diversification and adaptability. When one asset class experiences a downturn, the other components can potentially offset the losses, helping to stabilize your portfolio's overall performance. This balanced approach can enhance 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 sector-specific opportunities. India is one of the fastest growing economies and is also an emerging global manufacturing hub. With these economic developments, such fund presents a great potential to deliver exceptional long-term returns.

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Published: 21 May 2023, 11:44 AM IST

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