Multi asset allocation funds: Investment option in a volatile market

Such funds allocate investments across various asset classes, including equities, debt, and sometimes commodities like gold

In a financial landscape of uncertainty and swings, multi-asset allocation funds (MAAF) have become a strategic choice for Indian retail investors seeking security and growth.

 

The market has been volatile for months, with the benchmark Sensex experiencing significant fluctuations. Foreign institutional investors (FIIs) are net sellers, domestic inflation concerns persist, and global geopolitical tensions continue to influence investor sentiment. Against this backdrop, investment experts are advocating for a more balanced approach to wealth creation.

 

Let us understand how investing in multi asset allocation funds can be a strategy for retail investors.

 

Understanding multi-asset allocation funds

 

MAAFs are designed to invest in at least three different asset classes, with a minimum allocation of 10 per cent in each, as mandated by the Securities and Exchange Board of India (SEBI). This diversified approach aims to reduce the overall risk associated with investing in a single asset class. For instance, when equities face downturns, the performance of other assets like gold or bonds can help cushion the impact on the overall portfolio.

 

Investing in multi-asset funds

 

Diversified investment approach: MAAFs allocate investments across various asset classes, including equities, debt, and sometimes commodities like gold. This diversification helps investors balance risk and returns more efficiently compared to investing in a single asset class.

 

Protection against market volatility: The funds provide a hedge during market downturns. When equity markets decline during a bear phase, the allocation to non-equity assets helps cushion losses and reduce overall portfolio risk.

 

Professional fund management: MAAFs are led by experienced fund managers who monitor economic trends and industry sectors. They adjust the portfolio dynamically, increasing equity exposure during market upswings and reducing it during downturns to optimize returns.

 

Should investors put money in MAAF now?

 

“Now, it is not advisable that you invest in one multi-asset fund and diversify across asset classes, as there is concentration risk towards an AMC and if you invest in one or more similar funds you will not be able to track your asset allocation levels. Thus, it is advisable that you diversify across asset classes at a portfolio level,” said Chethan Shenoy, director & head - product & research, Anand Rathi Wealth Limited.

 

“Invest in pure-play equity funds from diversified categories such as large-cap, mid-cap, and multi-cap across different AMCs. For the debt portion, you can invest in arbitrage funds or in target maturity funds, which invest in state government papers or central government papers. Ideally, one should stay invested in two core asset classes with low correlation — for example, equity and debt,” Shenoy said.

 

Experts say that if one wants to explore gold, which is another defensive asset like debt, you can have a combined allocation of gold and debt in your portfolio up to 20 per cent. This will help you beat inflation in the long term. However, again, for gold, you should opt for gold ETFs only and not via any multi-asset fund.