In case you are a retail investor who is considering investing in a multi-asset allocation fund, here are a few things that could help you make prudent investment decisions.
A multi-asset mutual fund scheme may not always be highly diversified
SEBI or Securities and Exchange Board of India has defined multi-asset mutual funds as funds that invest in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes. This indicates that while an investor can avail the feature of diversification, it may come with certain compromises due to the 10% investment limits. This is why a detailed look through the scheme related information documents might help the investor understand the specific exposure to the asset classes. This will further help investors determine whether or not that level of exposure is relevant to their risk tolerance.
Multi-asset allocation funds are not a shortcut to individual portfolio diversification
Many aspiring investors are often advised to diversify their investments if they wish to strengthen their investment portfolio. However, it is important for investors to understand the difference between asset allocation that is done by a multi-asset allocation scheme and the asset allocation that is done for an individual’s portfolio. Firstly, in terms of a multi-asset allocation fund, there is a team of expert fund managers involved who study the market trends so as to make decisions with regard to the tactical exposure to asset classes. On the other hand, it might be smart for an individual to also choose mutual fund schemes independently. These schemes could invest in singular asset classes that have no correlation with each other. This might allow investors to follow value-based or growth-based investing in line with their appetite for risks, financial goals and economic situation.
It may help investors to get to know the taxation of multi-asset mutual funds
As multi-asset mutual fund schemes do not come with the mandate of investing 65% funds in either equity class or debt class, the taxation may differ from scheme to scheme. Additionally, the different asset classes that are invested in by the multi-asset fund scheme can be taxed differently. Therefore, a prudent investor should consider understanding the taxation of individual multi-asset funds with the help of detailed analysis of the scheme information documents (SID) available on the fund house’s website.
The fund manager’s role is one of importance when it comes to multi-asset allocation funds
As we’ve already discussed above, multi-asset mutual fund schemes involve asset allocation. Here, the expert team of fund managers looks closely at the market trends as well as the functioning of the asset classes and then takes the decision of investment. It is important to note that as this scheme does not follow any specific style of investing, the onus of taking the decision lies on the team of financial experts. Therefore, it only makes sense for investors to take another step in terms of research and look closely at the scheme related documents. Scheme Information Document generally mentions all the facts required by an investor before making the investment decision in detail.
In summary, adding a multi-asset allocation fund to your mutual fund portfolio may be seen as a prudent decision, provided you read all the scheme related documents. Additionally, it is equally important for you to be aware of your financial goals, risk appetite and investment time horizon before you choose to invest in these funds. Fund houses these days also offer investors the opportunity to clear all of their doubts regarding the schemes before they get started on their investment journey.
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.