Should you consider investing in multi-asset funds?
Oct 18, 2023, 15:10 IST
Are you missing out on the multi-asset investment revolution? Since the close of the previous calendar year, multi-asset funds have been enjoying strong traction, as depicted by the data from the Association of Mutual Funds in India. In December 2022, these schemes attracted the highest mutual fund inflows, at Rs. 1,711.42 crore, and the traction continued into July, wherein multi-asset allocation funds recorded over Rs. 1,300 crore of net inflows. Heading to August, hybrid funds witnessed a total inflow of Rs. 17,081 crores, with a majority of this inflow being cornered by multi-asset and arbitrage funds. So, why are these schemes becoming popular and is this the right time for you to consider this strategy?
Multi-asset investing is a strategic portfolio approach that involves spreading investments across various asset classes or categories rather than concentrating investments in a single asset class, such as stocks or bonds. By diversifying across stocks, bonds, real estate, commodities and more, multi-asset investing seeks to mitigate risk and potentially enhance returns by taking advantage of different asset classes' performance characteristics. Interested investors can participate via multi-asset allocation funds, schemes designed to invest across asset classes. Usually, these schemes invest a minimum of 10% of their corpus across three or more asset classes to unlock diversification through a single mutual fund scheme.
Multi-asset funds invest in different assets such as equities, debt, commodities and multiple other asset classes, making it a diversified portfolio with each asset class having its own risk-reward profile. In a diversified portfolio, asset classes have low or negative correlations. As a result, when one asset class underperforms, the fund's performance is supported by other asset classes. This approach helps mitigate risk and generate better risk-adjusted returns across different market cycles.
Here, an investor can benefit from the high-growth nature of stocks, the stable nature of fixed income and the inflationary hedge and safe haven features of certain commodities like gold. Such a portfolio also helps balance out the volatility of equities, making it a win-win solution for investors with a medium to low-risk appetite.
Further, multi-asset allocation mutual funds offer the convenience of automatic portfolio rebalancing, which proves invaluable, especially in the face of market volatility. Regularly adjusting asset allocations is key to navigating market ups and downs, and these schemes do it optimally without requiring active trading from the investors. While creating a personalised investment portfolio with the assistance of a professional can be costly and out of reach for many investors, investing in multi-asset allocation funds provides a solution by offering a pre-structured, diversified portfolio.
Multi-asset funds come in various shapes and sizes and can be tailored to different risk profiles. Some multi-asset funds have a higher equity component, while others have a higher debt allocation. As a result, investors can choose the multi-asset funds that best suit their requirements.
This unique combination of attributes in a single fund has made multi-asset allocation category schemes popular among investors, especially given the current highly volatile market scenario.
While multi-asset funds do offer a bevy of benefits, you should consider a few factors before deciding whether or not these schemes are the right fit for your requirements.
Multi-asset mutual funds are a good option for investors who are keen on participating in the growth of the equity market without facing the full brunt of the market's volatility. Further, suppose you are looking for optimal diversification from a single investment and wish to avail steady returns even when some asset classes are underperforming. In that case, multi-asset funds can be your best bet.
With equity markets surging towards record highs and fixed income offering stable returns, this is an opportune time for investors to turn their gaze towards multi-asset mutual funds to make the most of the opportunities presented by each of these asset classes.
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Assessing multi-asset investing
Multi-asset investing is a strategic portfolio approach that involves spreading investments across various asset classes or categories rather than concentrating investments in a single asset class, such as stocks or bonds. By diversifying across stocks, bonds, real estate, commodities and more, multi-asset investing seeks to mitigate risk and potentially enhance returns by taking advantage of different asset classes' performance characteristics. Interested investors can participate via multi-asset allocation funds, schemes designed to invest across asset classes. Usually, these schemes invest a minimum of 10% of their corpus across three or more asset classes to unlock diversification through a single mutual fund scheme.
Why is it gaining favour?
Multi-asset funds invest in different assets such as equities, debt, commodities and multiple other asset classes, making it a diversified portfolio with each asset class having its own risk-reward profile. In a diversified portfolio, asset classes have low or negative correlations. As a result, when one asset class underperforms, the fund's performance is supported by other asset classes. This approach helps mitigate risk and generate better risk-adjusted returns across different market cycles.
Here, an investor can benefit from the high-growth nature of stocks, the stable nature of fixed income and the inflationary hedge and safe haven features of certain commodities like gold. Such a portfolio also helps balance out the volatility of equities, making it a win-win solution for investors with a medium to low-risk appetite.
Further, multi-asset allocation mutual funds offer the convenience of automatic portfolio rebalancing, which proves invaluable, especially in the face of market volatility. Regularly adjusting asset allocations is key to navigating market ups and downs, and these schemes do it optimally without requiring active trading from the investors. While creating a personalised investment portfolio with the assistance of a professional can be costly and out of reach for many investors, investing in multi-asset allocation funds provides a solution by offering a pre-structured, diversified portfolio.
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This unique combination of attributes in a single fund has made multi-asset allocation category schemes popular among investors, especially given the current highly volatile market scenario.
Should you invest?
While multi-asset funds do offer a bevy of benefits, you should consider a few factors before deciding whether or not these schemes are the right fit for your requirements.
Multi-asset mutual funds are a good option for investors who are keen on participating in the growth of the equity market without facing the full brunt of the market's volatility. Further, suppose you are looking for optimal diversification from a single investment and wish to avail steady returns even when some asset classes are underperforming. In that case, multi-asset funds can be your best bet.
With equity markets surging towards record highs and fixed income offering stable returns, this is an opportune time for investors to turn their gaze towards multi-asset mutual funds to make the most of the opportunities presented by each of these asset classes.
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Disclaimer: The article is authored by Vinay Rai, Director, Bliss Capital Services Private Limited. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class: