Multi Asset Allocation Funds are balanced fund or asset allocation fund that must invest at least 10% of their assets in three asset classes: equity, debt, and gold. These funds often include a mix of equity, debt, and one or more asset classes such as gold, real estate, and so on. These funds are popular for a well-balanced portfolio and an excellent track record of delivering risk-adjusted returns. As an investor, why multi asset allocation funds should be a part of your portfolio, LiveMint spoke to experts to get an answer to this.

Saurav Basu, Head – Wealth Management, Tata Capital

A multi-asset allocation fund should be part of a portfolio due to their ability to provide diversification across different asset classes, which helps to spread risk and potentially enhance returns. By investing in a multi-asset fund, investors can gain exposure to a mix of stocks, bonds, commodities, and other assets (REITs), without the need to research and manage individual investments. This simplifies portfolio management and allows for professional management by experienced fund managers who can adjust the allocation based on market conditions, aiming to optimize returns and manage risk.

Currently, there are various multi asset funds in the industry which follow different asset allocation strategies. Before investing, an investor should evaluate the underlying investment strategy of the fund in order to choose the right fund as per the risk appetite, investment horizon and liquidity needs.

Also, the taxation of these funds varies and depends on the asset allocation for a particular scheme. Thus, before investing, an investor should understand the positioning of equity in the scheme to gauge the tax liabilities (whether the scheme falls under equity or non-equity taxation).

D.P. Singh, Deputy MD and CBO, SBI Mutual Fund

Multi Asset Allocation Funds make for a good addition to an investment portfolio of investors looking for exposure to different asset classes managed by professionals. They provide diversification across asset classes which acts as a hedge to the portfolio in case of a negative event for a particular asset class and saves the investor the hassle of rebalancing their asset allocation as per changing market dynamics. If an investor makes those changes, by switching investments from one instrument or scheme to another, capital gains taxes come in to play. This is not the case when the fund manager rebalances the portfolio in such funds. Investors beginning their investment journey can also consider multi-asset funds to familiarise themselves with different asset classes available.

Siddharth Vora - Head of Investment Strategy and Fund Manager – PMS, Prabhudas Lilladher

Through last year’s market narratives of geopolitical uncertainties, high inflation, tight monetary policies, and slowing global growth – the underlying macro conditions gave us conviction to identify one clear underlying investment approach: Multi asset investing. Amidst elevated macro uncertainty, rising yields and Russia-Ukraine war, a diversified yet dynamic allocation across asset classes in our multi asset portfolio, MADP preserved the capital when capital protection was the need of the hour. Through this phase MADP has continued to deliver on its core promise of consistency, low volatility, and sustainable outperformance helping our investors navigate the dynamic market landscape with peace of mind."

“Over last one year, our performance can be attributed to having lower allocation to equities as we entered the correction period of May and June 2022. Although we missed the some of market rally post June, we covered the underperformance by going overweight on Gold as we approached November. Gold outshined all other asset classes and continues to show good performance. As we entered the new-year, we started increasing our allocation in international equities from 6% in November 2022 to 11% by January 2023. 

The underperformers of 2022 – US and international equities started the year with a bang, recovering ~50% of last year's losses in first 3 months of the new year. We also increased our allocation in long duration Gilt funds from 2.8% to 7% as the pace of rate hikes slowed. Towards start of April, we marginally increased our position in domestic equities due to fair valuations and improving macros. Amidst the changing market narratives and one of the most challenging and interesting year from an investor's perspective, MADP has demonstrated resilience in terms of performance and robustness of our quant based Investment framework & processes."

“With this we are excited to enter a new market regime with improving macros and sentiment, to help MADP and its investors further compound their wealth sustainably through market cycles.

Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC Ltd

It may be equivalent to crystal gazing to be able to correctly predict the market movement and to do it consistently is impossible.  The future is hard to predict, but a smart asset allocation strategy can protect a portfolio from the uncertainties of the future. Longer period data of correlation indicates that investors with low correlated assets may benefit from returns with lower risks.  Asset Allocation balances risk reward by allocating capital to different asset classes. According to a study ‘Asset Allocation is the Key Determinant of Portfolio Performance’ & ~91.5% of returns can be attributed to Asset Allocation.  

While balancing may not always produce gain, it will provide participation in better performing asset classes. Low correlation amongst asset classes is important for portfolio construction purpose as it utilizes these assets to reduce the overall volatility of the portfolio returns. For example, there is a very low correlation amongst these Equity, Fixed Income and Gold assets classes and therefore there is divergence in the performance.