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Investing Across Three Or More Asset Classes Through A Single Fund

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Investing Across Three Or More Asset Classes Through A Single Fund

The important thing to consider here is that each asset class has a unique role to play in a portfolio. Equity brings in the growth element in the form capital appreciation, debt provides stability through predictable returns, gold acts as a hedge against inflation and REITs/InvITs are used as a part of the yield enhancement

Sanat Kacker, Mutual Fund Distributor
Sanat Kacker, Mutual Fund Distributor

It is a known fact that investments should be diversified across various asset classes. As a means to adhere to this requirement, investors invest across equity and debt and consider that asset class diversification is done. However, this is an erroneous thought process. Other than these two asset classes, there are several more asset classes available, whose return potential one can harness if one is ready to consider the various options available.

Here, a lay investor may face a stumbling block as keeping track of all these asset classes is no easy task. This is where multi-asset comes in handy. As per the SEBI mandate, a multi-asset fund by definition will invest in a minimum of 10% in three or more asset classes. Here, the most commonly invested in asset classes are equity, debt and gold. But there are fund houses will invest in Real Estate Investment Trusts (REITs) and/or Infrastructure Investment Trusts (InvITs) as well, thereby allowing investors exposure to asset classes which does not have very high co-relation with each other.

The important thing to consider here is that each asset class has a unique role to play in a portfolio. Equity brings in the growth element in the form capital appreciation, debt provides stability through predictable returns, gold acts as a hedge against inflation and REITs/InvITs are used as a part of the yield enhancement strategies. The beauty of a multi-asset fund is depending on the investment opportunities present across asset class, the fund manager will dynamically invest such that investors can gain from these opportunities. 

Given below are five reasons investors can consider investing in a multi-asset fund:
1) Perfect for first time equity investor 
For an investor with a 3-5-year horizon, multi-asset can be a good starting point. This is because for an investor who is new to investing, allocating across asset classes or even allocating to equities can be a challenging task. By investing in a multi-asset fund, one need not worry about allocating to various asset classes or rebalancing, as the fund manager will be doing the needful.
2) Provides asset allocation through a single fund
This is the easiest way to ensure that asset allocation is done in a systematic manner. Hence, if you are an investor looking to deploy lump sum investment in any market condition, this can be considered as a go-to fund. 
3) Delivers Nifty returns despite lower equity exposure 
Some of the consistent performers in this category over varying timeframes have delivered equity like returns despite having lower allocation to equities. This has been made possible because of judicious investments in various asset classes as and when they turned attractive. This clearly shows that by being patiently invested across several years or decades, one can generate optimal risk-adjusted returns through a multi-asset fund.
4) Gives flavor of real estate 
There are multi-asset funds which hold Real Estate Investment Trusts as a part of their portfolio. If you are invested in such a fund, then the investor will get the benefit of making the most out of real estate investments as well. 
5) Can be considered for income distribution 
For those planning to develop a sustained cash flow in their sunset years can consider initiating a systematic withdrawal plan from the investments made in this fund. Given that they are less volatile than an equity fund and is aptly diversified, investors across risk profile can consider this fund.  
6) Perfect for volatile times    
Every other day, equity market news is among the headlines for either its runaway rally, a sharp correction or heightened volatility. At a time when global central banks are on a liquidity tightening path, it is very likely that equity markets will remain volatile in the near to medium term. At such a time, investing in a hybrid fund like the multi-asset scheme may be beneficial to reduce portfolio volatility if one is overweight equities. 
To conclude, by investing in a multi-asset fund, an investor is effectively handing over the money management reins to a fund manager to make the most of the investment opportunities available across asset classes.  
 


 

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