MAAFs: Rebalance if allocation in portfolio has drifted significantly

Continue SIP if the fund has maintained its strategy and performance consistency, and continues to suit your goals

Multi-asset allocation funds (MAAFs) are currently the best-performing category among hybrid funds across the one-, three-, and five-year horizons. Their diversified structure has helped them deliver strong returns in recent times.

 

“Funds that had allocated to gold and silver saw a significant boost in their returns due to the recent rally,” says Jiral Mehta, senior manager – research, FundsIndia.

 

Fund management approach 

MAAFs must invest in at least three asset classes, with a minimum of 10 per cent in each. “Fund managers allocate money across asset classes based on market outlook, valuation, and risk appetite,” says Harsh Vira, chief financial planner and founder, FinPro Wealth. The allocation is dynamic and rebalanced periodically, usually quarterly or semi-annually.

 

Benefit from tailwinds across assets 

These funds provide a ready-made, diversified portfolio. “They help investors participate in multiple asset classes and benefit from their respective tailwinds over time. Diversification across multiple asset classes is particularly useful in times of geopolitical uncertainty,” says Akhil Chaturvedi, executive director and chief business officer, Motilal Oswal Asset Management Company.

 

“They reduce risk through diversification and provide stable returns across market cycles. Investors also gain from professional management and automatic portfolio rebalancing,” says Vira.

 

Asset allocation becomes more difficult 

MAAFs may not fit seamlessly into existing portfolios. “Adding them can result in unintended overweight or underweight positions and loss of flexibility in asset allocation,” says Mehta. 

These funds may underperform in strong bull markets. “Returns can also be lower if fund managers mistime asset allocation,” says Vira.

 

For conservative investors 

MAAFs are meant for investors seeking a balanced approach that blends stability with growth potential. “Any investor who is unsure of asset allocation across equities, fixed income, and gold can go for these funds,” says Chaturvedi.

“These funds are suitable for those who prefer not to actively manage rebalancing,” says Aparna Shanker, chief investment officer – equity, The Wealth Company Mutual Fund.

 

According to Abhishek Kumar, Securities and Exchange Board of India (Sebi)-registered investment adviser and founder, SahajMoney.com, they are best suited for investors with conservative or moderate risk appetite and a long investment horizon of at least five years.

 

Shanker adds that new investors or those shifting from traditional products like fixed deposits can use them as an entry point to market-linked investments. They may allocate 10–20 per cent of their portfolio to MAAFs as part of their core holdings and enter via a systematic investment plan (SIP).

 

Highly aggressive investors who prefer making their own tactical calls across asset classes may find these funds too conservative. Investors with short-term horizons of less than three years should also avoid them. “Experienced investors who already have a specified asset allocation in place can avoid these funds,” says Chaturvedi.

 

Pick the right fund 

Investors should review the fund’s asset-allocation strategy. “Favour funds where managers follow a clear, well-defined framework rather than making frequent or aggressive allocation shifts,” says Shanker. 

Kumar suggests checking if the fund maintains an equity allocation of 65 per cent or more for favourable equity-like taxation.

Investors should also examine the fund for performance consistency across cycles over three- to five-year periods. Measures of risk-adjusted returns such as Sharpe and Sortino ratios, and of volatility such as standard deviation, should also be assessed. Go for a direct plan with an expense ratio below 1 per cent. 

“Avoid funds that offer poor downside protection or which are heavily concentrated in one asset class,” adds Kumar.

 

Stay put 

Existing investors should not react to short-term performance. The objective of MAAFs is to smoothen returns across cycles. Investors should remain invested if the fund has maintained its strategy and performance consistency and continues to suit their goals. Continue SIPs to benefit from rupee-cost averaging and rebalance only if allocation in your overall portfolio has deviated significantly from target levels. 

 

The writer is a Mumbai-based independent financial journalist