Monday, August 15, 2022
Home > Finance News > 5 Tips to diversify your mutual fund portfolio with multi-asset allocation funds

5 Tips to diversify your mutual fund portfolio with multi-asset allocation funds


You may have heard of the age-old proverb,
‘variety is the spice of life’. But, did you know that variety as a concept is also important when it comes to personal finance and investment decisions. It finds its implication in the term ‘
diversification
’, which many financial experts and fund managers have quoted to be an imperative requirement in a prudent mutual fund portfolio.

Oftentimes, you may find it difficult to single-handedly achieve diversification as it involves a lot of time, research, studying of the markets, closely monitoring stocks through various trends and so on. And sometimes, you may not have the adequate financial acumen or time to understand how different asset classes function in order to make sound investment decisions. This is where multi-asset allocation funds could prove beneficial. Multi-asset allocation funds might offer you the opportunity to traverse through market volatility while experiencing capital protection and commensurate returns.

Here are five tips that might help you diversify your mutual fund portfolio with the help of multi-asset allocation funds:

1.
Choose this type of scheme to add diversification to your portfolio

Multi-asset funds primarily invest in a minimum of three asset classes. Some of the asset classes include; equity, debt, gold, real estate, securities with fixed income strategies, and so on. Therefore, investing in multi-asset allocation schemes helps to increase the diversification of your investment portfolio. Each of these asset classes has different investment objectives and might function differently across macroeconomic and microeconomic scenarios. This could offer your portfolio an advantage, as when one asset class is facing a downside, the other asset classes could function as capital protection. This way, by choosing to invest in one scheme, your mutual fund portfolio can avail the benefits across asset classes.

2.
Avail the expertise of a financial advisor

You wish to make prudent financial decisions when it comes to investments. However, what if you do not have the time or the resources to do so? In such a case, adding a multi asset allocation mutual fund to your portfolio may help as it comes with the expertise of a fund manager who is backed up by a research team. These finance experts may help in smartly allocating the investment in various asset classes in line with the economic situation. This tip comes in handy when novice investors wish to look for a mutual fund scheme that acts more like an all-weather fund and helps to diversify their financial portfolio.

3.
Opt for this fund to invest in a structured manner

SEBI or Securities and Exchange Board of India has directed all multi-asset allocation funds to invest in a minimum of three primary asset classes. The most common asset classes are equity, debt and gold. Additionally, a multi-asset allocation fund is directed to invest a minimum of 10% each proportionally in each of the asset classes. This provides an assurance that no matter what the market scenario is, each type of asset class is represented in your portfolio. This in a way, highlights the disciplined structure that investing in multi-asset funds can offer to your portfolio. It may further help investors to closely look at the scheme information documents to understand the mandate and investment objectives.

4.
Build your portfolio with the aim of long-term wealth creation

Multi-asset allocation schemes might be suitable for investors who have long-term goals and can stay invested for the time period of 5 years or more. The equity class component of the scheme may help investors avail the benefits of upward trends in the market, while the debt class component may help in hedging at times of downward trends in the market. The commodity asset class serves as a buffer as it could prove to be relatively stable across market cycles. Therefore, it may seem like a smart investment decision to maximise your portfolio by adding multi-asset allocation schemes to it.

5.
Strategic asset allocation to build a good portfolio

Sometimes, investors might feel that directly choosing to invest in a hybrid mutual fund scheme can serve the purpose of asset allocation. However, it is prudent for investors to first understand their investment goals, their
risk appetite
and time horizon before choosing the scheme that can fit your needs. While a multi-asset allocation fund can be an addition towards asset allocation towards your portfolio, it is equally important to note that these schemes alone may not be considered a well-diversified portfolio and addition of other schemes might make the portfolio robust. Smart investors such as you may benefit from monitoring your mutual fund portfolio at timely intervals to ensure sound financial decisions.

Disclaimer

An investor education initiative.

Visit www.icicipruamc.com/note to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website http://www.sebi.gov.in/intermediaries.html For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints on https://scores.gov.in if they are unsatisfied with the resolutions given by AMCs. SCORES portal facilitates you to lodge your complaint online with SEBI and subsequently view its status.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.



Source link

Leave a Reply

Your email address will not be published.

%d bloggers like this: