Mutual funds are designed to meet the diverse needs of investors. There are many schemes that can be used to meet different investment objectives, risk exposures, and asset allocation strategies. We will be discussing a type of mutual fund, Multi-Asset Allocation funds. Let's learn more about them and what you should keep in mind when choosing the right one for your portfolio. Continue reading!
A multi-asset allocation fund invests in multiple assets offering diversification across various asset classes. These schemes typically invest in equity, debt, and gold.
These asset classes can be dynamically allocated by the fund manager based on how the economy and markets work. If the stock market is optimistic, the fund manager may try to increase portfolio exposure to equity-related instruments or reduce debt instruments.
If the outlook for the country's economy is bleak, investment in gold could increase. Gold generally performs well when other asset types are going south.
The portfolio is more likely to produce risk-adjusted returns than one asset class because it does not depend on any single asset.
Now you know what multi-asset allocation funds do. These are just a few more things to keep in mind.
Multi-asset allocation funds must invest at least in 3 asset classes and have a minimum of 10% each according to the Securities And Exchange Board of India.
This allows investors to be exposed to three asset classes through one scheme. However, the minimum 10% limit could compromise diversification. If the fund manager isn't optimistic about the economy, the portfolio may have a higher exposure for gold-related investments, but minimal exposure to equity or debt.
Investors must read the documents before purchasing a scheme. They should also ensure that the scheme is within their risk tolerance.
A diversified portfolio that includes investments in different asset classes is a popular investment tip. Multi-asset allocation funds are exactly this. Investors should not worry about diversification and just invest in multi-asset allocation funds.
An investor's portfolio diversification is different from that of a mutual fund scheme. A mutual fund is not able to meet an investor's investment goal by minimizing risks. However, the manager of the fund and dedicated professionals work together to make sure that they achieve their objectives.
Individual investors must diversify their portfolios by choosing assets with low correlation to one another. So even if one asset type is performing well, it doesn't impact the other.
A multi-asset allocation fund also does not permit investors to achieve style diversification such as value or growth, market capitation-based diversification, and so forth.
There is no requirement to have more than 65% equity or debt holdings. Each scheme has its own taxation. Equity funds are preferred by most tax-sensitive investors. However, it is important that you carefully read the scheme-related documents to understand how the fund house plans to position equity within the scheme's portfolio. Investors shouldn't make assumptions about tax rules. They can speak to the fund house if they have any questions.
A multi-asset allocation fund is just like any other active mutual fund. The role of a fund manager in this fund is critical. This is because the scheme has no set investing style. The scheme could decide to invest 30% of its corpus into equity-related instruments, but the fund manager does not have to choose a specific investing style.
These aspects may be disclosed in some schemes' documents. However, multi-asset funds have a lot riding on the fund manager. Before investing, it is crucial that investors verify the track record of the fund manager and their performance.
Multi-Asset Allocation Funds are a great addition to any investor's portfolio if the scheme is carefully chosen. Investors must decide if they wish to diversify their portfolios. This includes whether they prefer to invest in multiple assets or if they are willing to take on the responsibility of managing different assets. If they choose the latter, the following points can help them select the best scheme based upon their profile.
Best wishes for Investing!
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