Make Multi-Asset Funds A Part Of Your Portfolio

Saravana Kumar S
Partner, My Investments

A multi-asset fund, as the name suggests, is a mutual fund scheme having exposure to more than one asset class. It essentially means that in such schemes investors’ money is not concentrated in one particular asset class such as equity, debt, gold, etc. Instead, a proper in-built asset allocation strategy in multi-asset funds ensures asset diversification, thus weeding out any concentra-tion risks in the portfolio. It is worth mentioning that asset allocation is one of the most important aspects of investment that investors should stick to, irrespective of the market cycles.

A proper fund allocation in various asset classes aids in minimising risk and helps generate steady as well as inflation-beating returns. As per the SEBI category definition, a multi- asset fund will maintain a minimum exposure of 10 per cent to three or more asset classes. However, depending on the market situations and various other factors, a multi-asset fund strategically changes its allocation with an aim to deliver better returns. Typically, for such a fund, equity exposure can range between 10 per cent and 80 per cent depending on market conditions.

In normal market cycles, multi-asset funds tend to dedicate a minimum allocation of 65 per cent to equity. While the range of exposure to debt, gold and real estate investment trusts and infrastructure investment trusts are 10-35 per cent, 10-30 percent and 0-10 per cent, respectively. Given its flexible approach in allocation, a multi-asset fund should be a preferred pick in an investor’s portfolio. Ideally, a quarter of one’s portfolio should be in a multi-asset scheme which will ensure that your investment sails smoothly through various market cycles during the course of wealth creation.

Here are the five reasons why you should have a multi-asset scheme in your portfolio:
1) Asset Diversification: While ensuring investors get the best of all asset classes, a multi-asset fund has the flexibility to invest in equity, debt, gold as well as several other asset classes. Such schemes strategically increase allocation to a performing asset class while reducing holding in the underperforming assets. A strategic allocation to all assets ensures the portfolio does not get undue shocks if one or two of the asset classes underper-form. This is because all the asset classes do not respond to, say, an economic development in a similar manner. For example: when the equity market corrected in March 2020, at the onset of the pandemic gold had a stellar rally, thereby providing a good counterbalance to the portfolio of an investor who had diversified allocation. Thus, investors get a combination of several assets in their portfolios with a proper asset allocation mechanism.

2) Low Risks and Stable Returns: As multi-asset funds are widely diversified, they reduce risks arising out of a concen-trated portfolio. Therefore, while there is relatively low to moderate risk, strategic change in allocations to various asset classes over the long term tends to deliver steady returns which are also inflation-beating.

3) Flexible Equity Allocation across Market-Cap: In a multi-asset fund, investors’ exposure to equity is not specific to particular market-cap companies. They have the leeway to invest across a gamut of companies spread across sectors irrespective of their sizes. This aids in ensuring diversification with equity as an asset category. Depending on the environ-ment and market conditions, such schemes can also take sector deviation compared to the benchmark which helps in generat-ing relatively better returns over the long term.

4) Diversified Debt Portfolio: As is the case with equity, the debt allocation too is diversified and is spread across a range of instruments such as CDs, NCDs, bonds, government securi-ties, among others. Depending on various macro factors like inflation, interest rates, economic activities and global central banks’ policy stance, multi-asset schemes strategically change their allocation to different debt instruments in order to yield stable returns from debt investments.

5) Hedge against Inflation: Since multi-asset funds may take exposure to gold, such schemes offer investors a hedge against inflation. As a result, investors get the dual advantage of inflation-beating return and a hedge against inflation

The writer is partner, My Investments
 Email: myinvestments.madurai@gmail.com, yeskumaryes@gmail.com