Multi-asset funds offer considerable relief in the choppy waters

With ongoing geopolitical events making international markets choppy, multi-asset funds seem to provide the much-needed stability. Multi-asset funds are allowed to invest in various asset classes ranging from equity, debt, gold, silver, commodities, futures, and options etc.

Due to the peculiarity of this fund and its mandate to allocate across four asset classes, it can offer not only better returns in the future but also mitigate imminent setbacks.

Dwaipayan Bose, an expert in strategic investment and co-founder at Advisor Khoj, has advised that asset classes follow their cycles and their rises & falls are often unpredictable.

Bose adds, 'On top of the normal volatility of Equity and Debt Markets, when there are complex geopolitical events, commodities also come into play. No wonder then why investors are flocking to multi-asset mutual funds to diversify their portfolios these days.' Citing figures, he said that in September 2023, the inflow from multi-asset allocation funds reached Rs 6,324 crore, which was Rs 4,707 crore more than the August inflows.

Explaining further, Bose said that multi-asset allocation funds are hybrid funds that invest in a minimum of three asset classes like equities, debt, and commodities. The Securities and Exchange Board of India (SEBI) mandates that multi-asset funds must invest a minimum of 10% of their total Assets Under Management (AUM) in each of three or more asset classes at all times.

'But here’s the catch. To maximize the potential benefits of Multi-Asset Allocation Funds, they must have sizeable and fixed allocation across asset classes. As per SEBI mandate, a fund manager can invest 10% each in debt and commodities and invest the balance 80% in equities. Should the equity markets fall, investors stand to lose out since the allocation for debt and commodities is just 10% each, and they don’t really get the benefits of low correlation between asset classes if the proportions are not sizeable and fixed,' he elaborated.

Another expert termed Nippon India Multi Asset Fund as an example of a true multi-asset fund, saying this fund believes in classical asset allocation. The fund, which gave a return of 19% in the last year, invests in four asset classes - Indian equities (50%), overseas equities (20%), commodities (15%), and debt (15%). He said that this investment mix has always been held constant since inception, so investors get the true benefits of a multi-asset fund.

Experts believe that if a fund house follows a fixed allocation strategy, investors almost always stand to gain. Investing in a true multi-asset fund is suitable in the current market conditions for a number of reasons. Notably, Foreign Institutional Investors (FIIs) have reduced their risk exposure due to high US bond yields, the ongoing conflict shows no signs of ending soon, crude oil prices are high, and if commodity prices continue to rise, gold will continue to shine. Hence, investors should invest in a good asset allocation fund for short-term stability as well as superior long-term returns.