Investing in multi-asset funds? Here’s what you need to know

Invest early in multi-asset allocation funds and achieve your financial goals more easily.

Investing in multi-asset funds Here’s what you need to know

Multi-asset allocation funds offer you the advantage of investing in a minimum of three different asset classes, thereby creating a diverse portfolio. Such a mixed portfolio helps in reducing the impact of risks by spreading investments across different asset classes and not restricting it to a single asset. 

These funds can be categorised as:

  • Target date funds: Target date funds allocate assets based on the investor’s appetite for risk and time horizon to attain their investment goals.
  • Risk tolerance funds: Risk tolerance funds allocate assets based entirely on the investor’s appetite for risk. 

Why should one consider investing in multi asset funds?

  • Diversification: According to norms laid down by SEBI, asset allocation funds are required to invest a minimum of 10% in each asset class. These funds do not limit their allocation to traditional investments like debt and equity but they also invest in other asset classes like gold and real estate, which helps in balancing low-performing assets with higher-performing assets. This protects investments from loss. For example, equity has been known to offer more than 12% over the long term whereas fixed income usually offers 7% year on year. Gold has offered an impressive CAGR of 9.4% over the previous decade. Average returns from real estate over the last decade has been around 10%.
  • Unrestrained entry and exit:  Certain mutual funds do not charge investors entry or exit load if they redeem 10% of the investment before the completion of a year. However, in such cases, an exit load of 1%  is charged if the remaining investment is not traded within a year. The vast majority may not charge any entry or exit load.
  • Rebalancing portfolio: Multi-asset mutual funds are designed in such a manner that they can easily shift from one asset class to another. In this way, they can reap the advantages of better performing sectors while avoiding sectors that can expose the portfolio to a higher risk. Dynamically rebalancing portfolios can help reduce risks and ensure the best returns across different market cycles. An independent investor might face challenges that involve shifting from one asset class to the other swiftly. Also, rebalancing the portfolio attracts charges in the form of taxes, which asset funds are not required to bear.
  • Ready-made portfolio: Portfolios are designed by fund managers who are the best in their industry. 

Related: Here's why over-diversification in your portfolio tends to reduce returns

How to invest in multi-asset allocation funds?

Once you have shortlisted the fund you wish to invest in, the process is hassle-free. You could choose to invest in either of these two ways:

  • Offline: All you need to do is fill in the application form, attach the documents required, and submit it to the closest branch of the fund house.
  • Online: Log on to the website of the asset management company dealing in the fund and trade the funds at your convenience. 
  • Which are some top-performing multi-asset allocation funds?

Here is a list of funds that have outperformed others and have shown consistent performance over time:

1. SBI Multi-Asset Allocation Fund

This fund generates returns of approximately 11.2%  a year at moderately high risk and is suitable for customers looking to build wealth over the long term.

Investment objective: This fund is aimed to provide investors with a balanced portfolio consisting of several asset classes. The investments are a mix of debt, equity, and other asset classes that are carefully chosen after evaluating market dynamics, macro-economic factors, etc.

Tax implications: Long-term capital gains tax is payable at the at the rate of 20% with indexation benefits if the units are held for more than 3 years.

2. Axis Triple Advantage Fund – Direct Plan

This fund generates annual returns of approximately 9% at moderately high risk and is suitable for customers looking to build wealth over the long term.

Investment objective: This scheme aims to generate regular income through a portfolio of equity, fixed income securities, and gold traded funds. 

Tax implications: The investor is taxed as per their income slab if the investment is sold within 3 years. Post this period, taxes are payable at the rate of 20% with indexation benefits.

3. ICICI Prudential Multi-Asset Fund 

This scheme yields a return of approximately 7.9% a year at moderately high risk. This fund is suitable for customers looking to build wealth over the long term.

Investment objective: This scheme aims to generate capital appreciation by investing largely in equity, equity-related instruments, and other classes of assets. 

Tax implications: Long-term capital gains tax is payable at the rate of approximately 10% if the units are held for more than three years.  

4. Aditya Birla Sun Life Financial Planning FOF Aggressive

This scheme yields a return of approximately 11.2% per year and is suitable for customers seeking fixed income with growth.

Investment objective: The objective of this scheme is to generate returns in line with their policies as per the risk profile of the customer.

Tax implications: Returns are taxed at the rate of 20% with indexation benefits post 3 years and as per your income slab until 3 years. 

5. HDFC Multi-Asset Growth Fund 

This fund generates approximately 14% investment returns per year at moderately high risk. It is suitable for customers desirous of building wealth over a time frame of 5 years or more.

Investment objective: To generate capital appreciation by investing largely in the stock market, equity-related instruments, gold, and money-market instruments.

Tax implications: Long-term capital gains tax is payable at the rate of 10% with indexation benefits, whereas short-terms gains are taxed at 15% minus indexation benefits.

Related: Here's how you can hold gold in demat form just like equity shares or mutual fund units [Premium]

Are multi-asset funds the right investment for you?

Investing in asset funds requires a clear perspective about your investment goals and the time horizon you can dedicate to achieve them. Your financial advisor can help you shortlist a fund that’s best suited to your requirements. Investors with a conservative approach who wish to diversify their portfolio without the hassle of holding too many funds can opt for a hybrid/multi-asset fund. Read this to get some insights on how to diversify your portfolio like an expert.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.




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