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What is Multi Asset Allocation Fund? Is It Good To Invest?

IndianMoney.com Research Team | Posted On Monday, March 09,2020, 03:50 PM

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What is Multi Asset Allocation Fund? Is It Good To Invest?

 

 

Hybrid funds invest in equity and debt securities. In multi-asset funds, this feature is taken a step ahead. They invest in an extra asset class. This helps reduce the market risk linked with the investment portfolio.

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What is Multi Asset Allocation Fund? Is It Good To Invest?

What is Multi Asset Allocation Fund?

Multi asset allocation funds are a category of hybrid mutual funds. As the name implies, these funds invest in multiple asset classes like equity, debt, gold and so on.

According to SEBI, the funds invested in each asset class must be a minimum of 10%. Allocation in these funds is based on the principal that positive correlation between various assets class are low. Lower positive correlation ensures that these asset classes will not move in the same direction.

Things To Know While Investing in Multi Asset Allocation Fund

  • Risk: The risk involved in these funds is very low. Each asset has its own risk profile. During a market cycle, debt securities perform well compared to equity and vice versa. This means, multi asset allocation funds are comparatively safe.
  • Returns: Equity funds are known to offer higher returns and debt funds give stable returns. In multi-asset allocation funds, both benefits are availed. This enhances the overall returns of the fund. So, high returns at low volatility.
  • Cost: The expense ratio of these funds is higher than hybrid funds. This is because of their small size, limited reach and increased administrative charges to manage the various assets involved.
  • Financial Goals: Investors who do not have access to various funds consider investing in this fund; as it gives exposure to various asset classes.

See Also: What is Meant by Asset Allocation?

Why Invest in Multi-Asset Allocation Fund?

  • Diversity: One major advantage of multi-asset allocation funds is the diversity. Allocating in a range of asset classes helps generate higher returns that can be used to achieve financial goals, inflation-beating returns and so on.
  • Flexibility: Flexibility is a by-product of diversity. As the allocation options range across equities, debts, real estate, gold, it gives the investor huge flexibility to meet the financial goals.
  • Dual benefit: Unlike pure equity or debt funds, that either generates high or stable returns, these funds offer both the benefits under a single investment.

How Multi-Asset Allocation Funds are Taxed?

Short term capital gains (STCG) are considered as normal income and are taxed according to the investor’s tax slabs. Long term capital hands (LTCG) are taxed at 10% with indexation and at 20% without indexation.

See Also: Why Invest in a Mutual Fund?

Risks of Investing in Multi-Asset Allocation Fund

Although diversification of assets is an advantage, the risk involved in each type of asset is applicable to the mutual fund as well. The market risk involved in equity funds and interest rate risk of debt funds does influence the returns. If the fund manager lacks the required expertise, then selection of funds might go wrong, which in turn affects the performance of the fund. It is important to ensure that the objectives of the investor and the fund are synchronized.

See Also: What is Portfolio Rebalancing? Steps to Rebalance Your Portfolio

Top 5 Multi-Asset Allocation Fund 2020

Fund Name

AUM (Crores)

3 Year Returns

5 Year Returns

Axis triple advantage

Rs 303

12.10%

8.90%

ABSL financial planning FOF aggressive

Rs 121

9.04%

8.66%

SBI multi asset allocation

Rs 253

8.24%

9.17%

ICICI prudential multi asset fund

Rs 11,902

8.37%

8.08%

HDFC multi asset fund

Rs 221

7.18%

7.56%

Conclusion

Multi-asset allocation funds are an ideal investment if the investors have a low profile. The first time investors, who would like to experience equity or debt funds, without exposing themselves completely to the risk involved, can invest in these mutual funds.

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