It is difficult to choose the right asset for investing amidst the economic certainties around the world. It’s quite rare to get good results from all the investment assets at the same time. The performance of each asset may vary depending on the prevailing situation in the economy. In such apprehensive scenarios, striking the right balance between every asset is important, which can be challenging to do it all by yourself. Multi-asset allocation funds can be an ideal option to manage your money in the changing economic cycles by striking the right balance between different investment asset classes. So, should you consider investing in multi-asset allocation funds? Let’s take a look!
What are multi-asset allocation funds?
Multi-asset allocation funds are types of mutual funds that fall under the hybrid category that invests across various asset classes such as equity, debt, gold, commodities, real estate and private equity. Basically, the fund manager rebalances the portfolio between different assets based on his market views to optimize the return. Unlike risk in hybrid funds investment that invests majorly into equity and debt instruments, multi-asset allocation funds hold less risk due to diversification into various assets that have low correlation with each other.
Should you consider investing in multi-asset allocation funds?
If you are looking to invest in readymade, well-diversified portfolio across all the important asset classes, multi-asset allocation funds can serve your purpose. These funds offer various attractive benefits in consideration with another category of mutual funds. Following are the benefits offered by these funds –
- Well diversified portfolio: Unlike other single asset allocation funds and hybrid funds that invest in equity and debt combination, multi-asset allocation funds make diversified investments into three or more asset classes. Investing in assets like gold and real estate that has a low correlation with capital market helps in reducing the overall risk in hybrid funds investment portfolio. Exposure to multiple assets in the portfolio protects your investment from higher volatility in the market.
- Professional portfolio rebalancing: Asset allocation percentage or levels in the multi-asset allocation fund’s portfolio is pre-defined. A fund manager with his expert market views keeps automatically rebalancing the portfolio without requiring your intervention. Periodic rebalancing of the portfolio helps the fund to performance in any market condition with continuous profit booking and reinvesting the gain at lower levels.
- Tax-efficient: With at least 65% of allocation into equity, multi-asset allocation funds are treated as equity-oriented funds for taxation. Short-term capital gains (less than a year) from these funds are taxed at 15% and long-term capital gains (more than a year) are taxed at 10% without indexation if the long-term capital gains in equity exceed INR 1 lakh for the year. The fund can offer tax-efficient returns to those who fall under higher tax slabs.
- Performance: By helping to diversify the risk, multi-asset allocation funds fetch you decent returns. With multiple assets in the portfolio, the fund performs well with managing the overall volatility. The poor performance of one of the asset class will be covered up by the other better-performing assets in the fund’s portfolio.
However, every fund comes with its own pros and cons. While investing in them, it’s important to consider both pros and cons. Rigid and high expense ratio are two of the main risk in hybrid funds investment which needs to be considered.
To sum up, for successful investing it’s important to follow the right asset allocation and timely rebalancing of the well-diversified portfolio in consideration with the individual risk-taking ability and investment goals. Multi-asset allocation funds make sense for investors who are looking for long-term strategic allocation into various assets and are not experts in building the portfolio. With professional management, the fund can help you attain your goal.