Amid market volatility, multi asset funds can fulfil long-term needs

As the New Year brings the financial year closer to an end, several new fund offers are being made, one of them is a subscription to the Sundaram Multi-Asset Allocation Fund. This calls for a discussion on the nature of the Multi-Asset Allocation Fund.

Generally, a less volatile fund than others, multi-asset funds invest in a variety of asset classes, such as equity, debt, gold, and real estate which help in risk diversification. The bare minimum of mandatory 10 percent allocation to an asset class makes it so.

The benefit of a multi-asset fund is that it does the allocation on the investor’s behalf. So, one fund gives a multi-asset exposure, which means the investor needn't buy assets individually if the fund alone satisfies the investment needs.

Since the rebalancing is done within the fund, the investor doesn’t have the burden of buying, selling, and paying taxes on gains on isolated assets.

According to Dwaipayan Bose, co-founder, Advisorkhoj, "Most investors dislike market volatility and prefer a smooth experience. Hence, diversification across asset classes is of utmost importance."

He provides three factors to keep in mind when considering a multi-asset fund. First, according to him, is to get the best returns from each asset class, ensure the fund is true to the label and does not tweak the asset allocation mix. Citing the example of the Nippon India Multi Asset Fund, he points to the asset allocation mix of 50:20:15:15 across domestic equity, overseas equity, commodities, and debt have never changed.

The second is to choose a fund which has an exposure to international equity as well. The Nippon Multi Asset Fund, for example, invests across four asset classes and 20 per cent of the corpus goes in that asset class. Other multi-asset funds like Sundaram, Invesco, and Axis also invest in global markets.

The third point of investing in a multi-asset fund can bring in the indexation benefits investors get. Indexation helps you get more from the fund since the value of investment is calculated keeping factors like inflation in mind and gets you more gains.

Overall, Multi-Asset funds have given good returns in the last one year. Nippon India Multi Asset Fund leads with a 15.72 per cent return, followed by Motilal Oswal with 13.85 per cent and HDFC Multi Asset Fund with 13.74 per cent. Tata Multi Asset Fund clocked in a return of 12.71 per cent.