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Multi-Asset Fund: A One-Stop Solution For Asset Allocation Needs

The asset class diversification provided by a multi-asset fund helps to reduce the overall risk the portfolio faces. This is an important feature which investors often tend to overlook but over the long term comes to bite back during times of distress.

Santosh Joseph, Founder & Partner, Germinate Investor Services LLP
Santosh Joseph, Founder & Partner, Germinate Investor Services LLP

Multi-asset mutual funds deliver the most important thing an investor can have --- a good strategic asset allocation mix. By putting your eggs in different baskets, a multi-asset fund portfolio is well-suited to perform in different environments. Historical data shows that asset class performance often tends to be cyclical in nature. But most importantly, unpredictable. Hence, smart investors keeping this in mind prefer to spread their bets across various asset classes.

Let us consider some of the most popular asset classes known by the masses – Equity, Debt and Gold. Equity, in your portfolio, plays the role of wealth creator but goes through phases of consolidation and growth during the process of wealth creation. Debt on the other hand tends to offer stability to your portfolio and provides consistent returns. And finally Gold, which also comes with its phases of consolidation and growth, acts as a good hedge thereby protecting your portfolio from risks such as inflation.

Deciding Allocation

When a lay investor decides to allocate money across asset classes, one of the key determinants, on a sub-conscious level is to allocate more to that asset class which can deliver the most returns. For example: For an investor doing this exercise in 2021, the go-to option would have been equities as the markets were steadily heading north. However, that is exactly what is not to be done. It is important to recognize that different asset classes behave differently in various phases in the economy. Based on one’s risk appetite, it is important to spread investments across no matter what is current outperforming asset class. Investors should remember that asset allocation is to help create a balance among your investments so that there are no extremes in the portfolio.  

What should an investor do?

Investors across the world are on a caution mode as global central banks have embarked on a rate hike journey. The optimal approach at such a time would be to adhere to asset allocation and opt for multi asset strategies. This is because equity market is likely to remain volatile in the interim. At the same time, debt market could deliver stable returns while gold could provide a hedge against inflation. This is especially at a time when inflation is at multi-year highs across both developed and developing countries.  

The easiest way to achieve exposure to several asset classes through a single fund is through a multi-asset fund. In a multi asset fund, the aim is to maintain a minimum exposure of 10% to three or more asset classes. However, depending on the market situations and various other factors a multi-asset fund changes its allocation to ensure investors get the best the investment opportunities offered by various asset classes. 

While choosing a multi-asset fund, investors must keep in mind a few things. One, ensure that the investment strategy of the fund is in sync with your risk profile. Give preference to a fund that dynamically changes exposure to equity assets depending on market valuations. Two, understand the investing philosophy behind the fixed-income/debt play and enquire about the track-record when it comes to anticipating and reacting to interest-rate changes. Three, choose a multi-asset fund that has years of experience in navigating Indian markets. 

Key take-away
The asset class diversification provided by a multi-asset fund helps to reduce the overall risk the portfolio faces. This is an important feature which investors often tend to overlook but over the long term comes to bite back during times of distress. In effect, investing in a diverse portfolio ensures that you are not at the mercy of the performance of a single asset class. Since a lay person does not have the time and expertise to keep track of every development in the economy and asset class, the optimal approach is to entrust a team of fund managers to do it for you by way of a multi-asset fund.

Given the nature of the fund, investors can even consider lump sum investment in this fund. Alternately, if you are an investor looking to creating an anchor fund in your portfolio this can be a suitable one. An SIP over the years can be a prudent way to invest.


 

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