What are multi-asset allocation funds?
According to the Securities and Exchange Board of India (SEBI), multi-asset allocation funds are hybrid funds that invest a minimum of 10 per cent of their assets in three or more asset classes. The investments of these funds often comprises of instruments from the equities, debt, gold, real estate, and other asset classes. This provides investors with the advantage of exposure to a diverse portfolio of investments.
What kind of returns can you expect?
As their investments are spread across numerous asset classes, these funds are always late in catching the trend of the asset class. As a result, the returns earned are comparable to those of balanced advantage funds. However, the risk these funds are exposed to is lower when compared to dynamic asset allocation funds.
What are the underlying risks?
A multi-asset allocation fund's risk levels are in the lower range. This is because their portfolio is designed in such a manner that the fund invests at least 10 per cent of its assets in at least three distinct asset classes. This reduces the risk of concentration and provides investors with the advantage of exposure to a diversified portfolio of investments.
These investment components of these funds are subject to market risk, volatility risk and concentration risk. The debt component of these funds exposes them to liquidity risk, credit risk and volatility risk. If the fund is exposed to gold, the volatility of the gold price might have an impact on the fund. If the fund has made an investment in real estate, it is exposed to liquidity risk.
What investment horizon is suited for multi-asset allocation funds?
If your investing horizon is more than three years, you can invest in multi-asset allocation funds. The fund stabilises the returns on your portfolio over time.
Who should invest in them?
Multi-asset allocation mutual funds are a good choice for investors who do not want to take too much risk and want to achieve steady and predictable returns. If you have a long-term investment horizon, you should consider investing in these funds.
The diversified portfolio of these funds reduces the risk of concentration and generates consistent returns. The equity exposure enables these funds to provide long-term financial gains. If you want to diversify your portfolio, investing in a multi-asset allocation fund is a good alternative.