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Should you go for multi-asset allocation funds?


Multi-Asset Funds are a type of mutual fund scheme that can be considered by novice retail investors. As an investor, if you are looking for investment avenues for long term wealth creation, then it may be prudent to add multi-asset allocation mutual fund schemes to your portfolio.

What is a multi-asset allocation fund?

A multi-asset fund is a type of mutual fund scheme that invests across various asset classes such as debt, equity, fixed income strategies, real estate, index-tracking funds, financial derivatives and commodity funds like gold. According to SEBI (Securities and Exchange Board of India) multi-asset allocation funds can offer a level of diversification. The diversity offered by this mutual fund scheme might allow scheme managers to balance risk with reward and aim for commensurate returns over the long term.

If you are a retail investor, here are a few reasons why you could consider multi-asset allocation funds:

Comparatively less volatility

As you may already be aware, the performance of mutual fund schemes is tied to the performance of the markets. This is why you might often hear that investors need to assess their risk appetite and time horizon before investing in mutual funds. For instance, if you invest in an equity mutual fund, chances are that it might carry a higher risk if the market shows any signs of a downward trend. However, this is not the case with multi-asset mutual fund schemes as they invest across asset classes. As each asset class performs differently during a market cycle, the potential loss or gain might also be balanced.

Diversification

Multi-asset allocation schemes, by virtue of the name, can invest in multiple asset classes. Therefore, through a single investment, you can invest in more than one type of asset class. This inadvertently allows you to diversify your financial portfolio. This diversification can be considered as an opportunity towards building a sustained wealth corpus, basis goals. It is prudent to make an informed decision by going through all the details in the Scheme Information Document (SID) before you choose to invest.

Potential for sustained returns over long term

As multi-asset allocation funds invest in varied asset classes, it might be likely that some of the asset classes outperform the others over time. This could allow you to protect your capital in a scenario where one asset class might underperform. Ultimately it may also allow you to get balanced, commensurate returns over the long-term by taking advantage of market volatility. This investment strategy may be useful if you are looking towards achieving your long-term goals.

In addition to the above, the following can help you consider if you should invest in multi-asset allocation funds:

  • Investments in multi-asset allocation funds may have the potential to be more tax efficient than investments in a singular asset class
  • While the risk may be diversified, it may not be possible to aim for higher returns over a short investment horizon
  • If you are looking to build a corpus over the long-term you could consider investing in multi-asset allocation funds as they might perform positively over multiple market cycles
  • At the same time, these mutual fund schemes may allow you to take advantage of the bull market cycles

It may help investors to note that due to this diversification, these schemes may not be able to deliver on par results with others that invest in single asset classes.

Before investing, it is important that you take a close look at your risk appetite, time horizon and goals in order to make smart investment 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.



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