What are Multi Asset Allocation Funds?
It is a category of Hybrid Mutual Funds that can invest in more than two asset classes. Typically, mutual funds invest in equity and debt securities, to generate returns. However, multi asset allocation funds have the advantage of investing in an extra asset class. As per the norms formulated by SEBI, a minimum of 10% allocation is required for each invested asset class. This diversification in terms of types of assets lowers down the market risk associated with the investment portfolio.
Table of Contents :
Features of Multi Asset Allocation Funds
- Risk Exposure of the portfolio
The investment portfolio of a multi asset allocation fund is exposed to a number of assets as compared to other hybrid funds. In a diverse portfolio, every asset has its own risk-return profile and the performance differs during every market cycle. During a particular market phase, debt securities might perform well as opposed to the performance of equity securities. This reduces the overall risk exposure of the investment portfolio.
- Returns
Investment in a multitude of asset classes in this type of fund proves beneficial for investors who want to leverage the advantages of varied asset classes. Equity securities offer opportunity for high returns, whereas debt securities give stability to the overall investment portfolio. As a result, the overall returns are less volatile, and comparatively higher than those of debt mutual fund schemes.
- Automated Rebalancing of Portfolio
The investment portfolio of Multi Asset Funds is regularly rebalanced to provide as per the market sentiment. Rebalancing of portfolio is done, to book the gains from the asset which is performing well and reduce exposure to underperforming securities.
- Pre-devised Portfolio
A fully developed portfolio is handed over to the investors, carved at the hands of the professional fund managers. It is a great investment avenue for investors who are not willing to subscribe to too many funds. In that case, multi-asset allocation funds becomes the best investment option as they provide adequate exposure to multiple assets in one single investment plan.
- Expense ratio
Multi Asset Allocation Funds have a small size, limited reach and a relatively low Assets Under Management (AUM). Henceforth, the expense ratio involved of these funds is higher compared to other hybrid funds.
Who should invest in Multi-Asset Allocation funds?
- Multi asset funds are comparatively less risky than other funds which makes them suitable for investors who are not willing to allocate their resources in volatile funds. However, there are investors who understand that diversification can be of great benefit and balanced portfolios might be riskier than they appear.
- These funds can be the best option to invest for the individuals who are not inclined to hold too many funds. The diverse portfolio thus gives them the exact exposure to different assets through one single investment.
How to invest?
There are two ways through which a person can invest in Multi Asset Allocation Funds:
- Online
You can invest in Multi Asset Allocation Funds online seamlessly through online platforms (such as Paisabazaar.com) or directly through the websites of the Asset Management Companies (AMCs), offering the fund.
- Offline
This conventional mode of investment requires an investor to fill a form and submit it at the nearby branch of the fund house, or invest through a broker.
To know more about the investment procedure for mutual funds, visit: How to invest in Mutual Funds?
Tax treatment in Multi Asset Allocation Funds
As far as taxation is concerned, Multi Asset funds are known to be the best mutual funds. Short-term capital gains (STCG) are combined with income and taxed. On the other hand, long-term capital gains (LTCG) are taxed at 10% (with indexation benefits) and 20% (without indexation benefits).
Best Multi Asset Allocation Funds to Invest
Here is a list of top 5 Multi Asset Allocation Funds that have shown consistent performance and one can consider investing in these funds:
| Fund Name | AUM (cr.) | 3 – Year Returns | 5 – Year Returns |
| SBI Multi Asset Allocation | ₹253 | 8.24% | 9.17% |
| Axis Triple Advantage | ₹303 | 12.10% | 8.90% |
| ABSL Financial Planning FOF Aggressive | ₹121 | 9.04% | 8.66% |
| ICICI Prudential Multi – Asset Fund | ₹11,902 | 8.37% | 8.08% |
| HDFC Multi Asset Fund | ₹221 | 7.18% | 7.56% |
{Data as on February 14, 2020; Source: Value Research}
Frequently Asked Questions
Q.1: What is a Multi Asset Fund?
Ans: Multi Asset Fund refers to a mutual fund which allocates the total assets into a combination of different asset classes such as Equity, Cash and Debt Instruments. It can be understood as a category of Hybrid Funds investing in more than two asset classes.
Q.2: Should I invest in Multi Asset Funds for right allocation?
Ans: Multi-Asset Mutual Funds are comparatively less risky than other funds as they practice diversification within the proportion suggested by SEBI. Different asset classes perform differently during market fluctuation implying that every asset has its own risk-profile. The overall returns from these types of funds are less volatile and comparatively higher than those of debt funds. So, if you want to invest in a diversified portfolio and earn good returns, you can invest in Multi Asset Funds.
Q.3: What is the purpose of diversification in Mutual Funds?
Ans: Some Mutual Fund investors prefer one single asset class while others believe in diversification. However, it is suggested that one should always prefer a diversified portfolio over a concentrated portfolio. The main objective of diversification in mutual funds is to balance the market risk associated with a single asset class. It pacifies the negative impact of the negative performance of any one security in the overall portfolio. But, overdiversification can be redundant, likewise too little is risky.
Q.4: What is a multi asset portfolio?
Ans: Multi Asset portfolio is a fund’s portfolio which is not restricted to asset allocation in a single asset class. This portfolio has a combination of asset classes such as equity, debt, cash and other money market instruments.
Q.5: Are Multi asset funds a good investment?
Ans: The suitability of a multi-asset fund depends on your investment stance. If you are a conservative investor wanting to invest in a portfolio with multiple asset classes and not restrict your investment to a single class, this category can be good for you. Moreover, the diverse portfolio gives investors the exact exposure to different assets through one single investment which makes it suitable for individuals who are not inclined to hold too many funds.