Mutual funds are designed to cater to the needs of a wide range of investors. As a result, there are various investment objectives, risk tolerance levels, and asset allocation techniques to consider. Today, we’ll look at multi-asset allocation funds, which are a type of mutual fund. Let’s take a closer look at what they are and what you should do with them before incorporating them into your portfolio.

Definition of Multi-Asset Allocation Funds

Multi-Asset Allocation Mutual Funds are a type of mutual fund that invests in a variety of asset classes. It usually includes more than one asset class and is used to build a portfolio of assets. The distribution of assets and their composition varies from one investor to the next.

According to the Brinson study, asset allocation accounts for 93.4 percent of a fund’s average performance. These plans are designed to provide investors with a stable income and capital appreciation by investing in a well-balanced portfolio of investments.

An investor can invest in equity and debt instruments, equity-oriented schemes, and gold and gold-oriented investment instruments through a multi-asset allocation fund. An investor can put up to 80% of his or her money into either asset type. Mutual fund units and stock loans of up to 20% of assets may be a viable investment option for the fund.

Usually, such funds can be further categorized as –

  1. Risk tolerance funds.
  2. Target-date funds.

The asset allocation of Risk Tolerance Funds is totally determined by an investor’s risk appetite. Investors with a higher risk appetite would be more likely to invest in equities, whilst cautious investors would focus on a fixed income.

The asset allocation of Target-date funds varies depending on the investor’s selected time horizon.

Who can Invest in Multi-Asset Allocation Funds?

Multi-asset allocation Mutual Funds are recommended for investors with a modest risk appetite who want to earn consistent returns on their money. Also, Multi-asset allocation assists such investors in reducing the risk associated with investing in a single asset class.It also assures that investors receive a consistent stream of income, even when some asset types are underperforming.

Major Benefits of Multi-asset Allocation Fund

The features of multi-asset allocation funds and their associated perks show to be significant benefits for investors.

  • Diversification

Multi-asset allocation allows investors to diversify their portfolio by exposing it to various asset classes with varying risk-reward characteristics. It will enable investors to reduce their risk and generate consistent returns during several market cycles.

  • Rebalancing portfolio

It’s critical to rebalance your portfolio to ensure that your assets are evenly divided among the asset classes that outperform others. Automatic portfolio rebalancing is available in multi-asset allocation Mutual Funds, which benefits investors in various ways. Because the market is prone to volatility, rebalancing your portfolio and reallocating assets is essential for navigating the ups and downs.

  • Ready-made portfolio

Not everyone can afford to have a professional develop a custom investing plan for them. When an investor invests in multi-asset allocation funds, they not only get a well-balanced risk-reward investment alternative, but they also get a ready-made portfolio. By investing in a single type of fund, investors can gain access to the benefits of many asset classes.

  • Unrestrained entry and exit

The fund does not charge an investment anything to join or depart the scheme. If investors redeem 10% of their investment before the end of the year, they are eligible for free admission and exit.

If the remainder of the investment is not redeemed within a year, an exit load of 1% is applied. If it is traded after a year, however, there is no exit load.

Despite the fact that the multi-asset allocation fund has not gone through a full market cycle, it is possible to generate big returns in a short period of time. Investors with knowledge of asset allocation and portfolio rebalancing may be able to get the most out of these funds.

Choose the best Multi-Asset Allocation Fund: How?

Quantitative Parameters:

Assess your risk profile, investment objective, and investment horizon before investing in a multi-asset allocation fund to find a suitable plan (equity-oriented multi-asset fund or debt-oriented multi-asset fund).

Then compare the fund’s consistency in performance to the benchmark and category peers through several market periods (bull and bear market phases). While all funds may perform well during bull markets, one crucial factor to consider when choosing a Multi-Asset Allocation Fund is its capacity to mitigate downside risk during bear markets by carefully allocating assets across equities, debt, gold, and other assets.

Over three years, use risk-reward ratios like Sharpe Ratio, Sortino Ratio, and Standard Deviation to see if the fund has compensated its investors effectively for the risk they took. When selecting funds for your portfolio, look for those that have a good risk-reward profile.

Qualitative Parameters:

Qualitative characteristics are frequently disregarded, despite their importance in the selection process. It entails determining the portfolio’s quality as well as the fund manager’s/efficiency. house’s

The fund company should have a strong track record of success and adhere to sound investment practices with suitable risk management measures. Check the fund manager’s qualifications and experience, as well as the track record of the other schemes they handle, because the fund’s performance is directly dependent on his or her skills.

Examine the portfolio of the fund to see how well it is diversified across asset classes and securities within those asset classes. Keep in mind that a concentrated portfolio puts you, the investor, at greater risk. A multi-asset fund with an equity-heavy portfolio is potentially dangerous. If the fund has a bigger allocation to equities in the mid-cap and small-cap segments, the risk will increase even more. Choose a plan that is compatible with your risk profile.

Check the credit profile of the underlying securities for the debt element of the portfolio. To decrease credit risk, the fund should allocate the majority of its assets to high-quality papers. Furthermore, depending on the interest rate outlook, the fund should be well-positioned to rebalance the portfolio. Depending on the economic forecast, make sure the fund is appropriately diversified in gold (or any other asset class as per the scheme’s investment mandate).

Also, keep an eye on the churning rate of the stocks in the portfolio, as a high churning rate might lead the portfolio to become volatile, lowering the scheme’s total returns. Examine the portfolio’s turnover and expense ratios to see how well the fund manages churn and keeps costs under control.

Things to know before investing in multi-asset allocation funds

1.Taxation status could be equity or debt

A minimum of 65 percent equity is not required by all multi-asset allocation funds. Only five of the 11 multi asset funds (Axis, HDFC, ICICI Pru, Tata, and UTI) have said that they will hold at least 65 percent of their assets in equity.

The rest, as it should be, can go for a lot less in equity. This effectively means that some multi-asset funds may not be subject to equity taxation. Many of you are unaware of this, and based on our contacts with you, the vast majority of you are tax-sensitive and hesitant to manage a long-term product with equity but debt-like tax position.

There are also at least 5 FoFs from Franklin, IDFC, Quantum, Aditya Birla Sun Life, and HSBC, which can use gold. Of these, Franklin and Quantum are the ones that steadily use all 3 asset classes. As FoFs’ tax status, irrespective of how much equity they hold, will be debt.

2.Multi-asset allocation fund may not surely be diversified

Some multi-asset funds strive to hold higher equities in order to capture enough equity returns and keep equity tax status. Axis Triple Advantage, for example, has the mandate to invest at least 65 percent of its assets in shares, which it strives to meet. As a result, it has a lower average gold holding than SBI Multi-Asset, which has significantly less equity. This means that the fund’s allocations aren’t changed much in response to market cycles, and its performance is quite similar to that of an equity-oriented hybrid fund.

So, if you expected your fund to dynamically move between asset classes to contain losses or capture gains, you might be disappointed. Similarly, aside from Franklin and Quantum Fund of Funds, the other fund of funds that have the option of investing in gold have done so rarely.

3.Holding a multi-asset fund may diversify your portfolio

Unless it makes up the bulk of your portfolio, multi-assets is a crucial element that most of you overlook. Rather than focusing on what the fund accomplishes, you must understand how the fund can affect your portfolio’s allocation and performance. If you don’t, you’ll only end up putting more money into your portfolio without making a significant difference.

Furthermore, it is vital to note that holding such hybrid funds does not provide style diversification (growth or value, focused or diversified, large or midcap). The fund is unlikely to provide meaningful diversification. For instance, if a multi-asset fund holds 15% of its assets in gold on average, and this fund accounts for 15% of your portfolio, your gold allocation is 2.25 percent! If that was your plan, you’re scarcely hedging your portfolio with gold, and dynamic asset moves within this fund won’t add much to your results.

4.A risky asset mix

Furthermore, investors in this fund are unsure about their asset allocation. Investors wanting a 10% exposure to stocks will be baffled by a 50% exposure to stocks, and vice versa. It is preferable for investors to invest in stock and debt separately.

5.Due to a lack of allocation rules,

The asset mix decision made by these funds has had a significant impact on their success. The asset allocation of the majority of funds is left to the discretion of their fund managers. While some have an objective metric for assessing market profitability and fine-tuning asset allocations, others do not. A subjective measure could be counterproductive, especially during bull markets, when fund managers may be tempted to let asset holdings drift to their maximum potential in the pursuit of higher returns.

 Outlook Multi-Asset Allocation Fund in 2021

The foundation of effective investment is asset allocation. When properly defined and implemented, asset allocation serves as an investment strategy for balancing risk and reward by modifying the risk share of each asset in the investment portfolio.

When equities experience a correction or volatility, other asset classes, such as debt and gold, might help the investment portfolio achieve net positive returns. As a result, it is vital to diversify assets across asset classes, such as equities, debt, gold, and even optimal cash.

Gold has lost some vibrancy (from its all-time highs of 2020) with the rapid recovery in the equity market, but it will continue to be an efficient portfolio diversifier. It’s important to remember that it’s a safe sanctuary with a valuable store of value. Meanwhile, the debt component will provide your portfolio with much-needed steadiness.

While the stock market may be highly unpredictable in the short term, it can outperform other asset types over time. Furthermore, if the equity market becomes volatile again, debt and gold will continue to insulate investors from rising inflation and encourage growth in the face of uncertainty.

So, if you’re a first-time investor looking for capital appreciation at a lesser risk than pure equities funds, a worthy multi-asset allocation fund is a good option. Investors who find it challenging to rebalance their portfolio on their own in response to changing market conditions may consider this category.


Multi-Asset Allocation Funds can be an excellent addition to any investor’s portfolio if the scheme is carefully chosen. If portfolio diversification is desired, investors must decide whether to use a plan that invests in several assets or take on the duty of investing in other assets themselves. If the former is the case, the guidelines outlined above can assist them in selecting the best strategy for their needs.

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