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Multi-Asset Allocation Fund: Choose the Best For Yourself

Multi-Asset Allocation Fund: Choose the Best For Yourself

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Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.

Hybrid mutual funds are gaining popularity due to the innovative ways they handle your money. In the same fund, you can get exposure to multiple asset classes like equity, debt, derivatives, commodities, and so on. This falls perfectly with the old investment adage, ‘do not put all your eggs in the same basket’. Having various asset classes also redistributes your risks and makes your portfolio well-rounded to withstand unpredictable market storms. Multi-asset allocation fund is a type of hybrid fund that we shall know about more about in the upcoming sections.

What is a multi-asset allocation fund?

As the name suggests, these types of funds have 3 or more underlying assets in predetermined weightages. Typically, a minimum of 10% is allocated each to equity (stocks and shares), debt instruments (bonds, treasury bills), and a third category that can be precious metals (gold, silver), real estate, or other commodities. This builds a diversified portfolio within the same fund scheme itself with the intention of building a high corpus in the mid to long-term investment window. 

Two types of variations are possible for multi-asset allocation funds. One is time-bound. In this, investment is based largely on your preferred horizon of, say, 3 years, 5 years, 10 years, and so on. Asset allocation is done and monitored to provide you with the best possible returns by the end of the chosen period. This is a good goal-based investment strategy and keeps your risks under check as well. 

The second is risk-based. A multi-asset allocation fund gives a higher degree of freedom for the fund manager to play around with the proportions of the different asset classes. If you have a high-risk tolerance, then a larger portion of your invested amount may be utilised towards equity exposure. If you have a lower to medium risk appetite, then debt instruments would be preferred. The cap is set at 80%. In other words, no particular asset class of the fund will have a capital exposure of more than 80% in it.  

Benefits of investing in a multi-asset allocation fund?

  • Diversification: Diversification is one of the prominent and unique benefits offered by a multi-asset allocation fund. People seek and pay for this service specifically, while you are getting it all built for you just by purchasing units. Based on your risk appetite and investment horizon, who can have your own custom-built fund with a healthy mix of equity, debt and other asset classes.
  • Ability to rebalance: Diversification does not mean that you’re stuck with the ratio in which you have invested. While it is important to invest right to build wealth, it is equally important to monitor and rebalance based on market swings. Different fund schemes have different provisions to manage, with the most popular being ‘automatic rebalancing’. Under this, the fund manager periodically checks the health and performance of the fund and rebalances asset classes accordingly. This active management helps you generate higher returns than a passive fund in which once the asset ratio is assigned, it goes unchecked.
  • Steady returns: Active management and rebalancing also help in generating steady and fairly predictable returns as compared to other instruments in the market. 
  • Convenience of investment: There is not much needed to be done from your side, nor are there many prerequisites to invest in these funds. Simply using your basic personal details, including PAN and bank account number, you can invest in the fund of your choice either directly or through an intermediary. Furthermore, you have the option of investing as a one-time lump sum amount or via the means of monthly SIP instalments. 

Other factors to consider

Apart from the aforementioned advantages, there are certainly other factors to keep in mind before investing in multi-asset allocation funds.

  • Taxability: Due to the possibility of high dominance of one asset class, these funds are taxed accordingly. In other words, if a fund has over 65% exposure in equity, then they are taxed as an equity fund with long-term (LTCG) and short-term (STCG) taxes applicable to them. While STCG is levied at 15% + taxes on net gains, LTCG is charged at 10% of gains in excess of ₹I lakh. The time window is 12 months, and gains made in the period under that are taxed as STCG.
  • Returns: Multi-asset allocation funds are known to provide healthy and steady returns. However, if you have a more pro-risk desire, then you may be better off choosing an aggressive hybrid fund or an out-and-out equity fund.  Furthermore, if you wish to get solid returns in a short period, there too, multi-allocation mutual funds may not be the best option for you.
  • Risks: While these funds carry significantly lower risks due to a spread in asset classes, it is not to say that there are no risks involved at all. Having an equity exposure, there are always market volatility and concentration risks. Debt exposure brings with it liquidity and credit risks. However, over the course of time, these risks get mitigated to a great extent, making them seem negligible in the overall scheme of things.

Who should invest in multi-asset allocation funds?

The standard profile of an investor who should invest in multi-asset allocation funds is someone who is not risk-averse but also not willing to absorb high risks. So, a moderate risk taker who is looking to gain reasonably steady returns over an investment period of at least 3 years, and ideally 4-5 years. It is not uncommon for investors to choose to stay invested in the fund after 3 years due to the better-than-average performance and returns provided. 

Top Multi-Asset Allocation Funds

The below highlights the top-performing funds in this category based on returns generated. However, this is just a list and in no way a recommendation.

Source: ET Money

Summing up

If you’re one of those who want to get the best of both worlds, i.e. not taking too much risk and getting somewhat stable returns, then you can consider multi-asset funds as a choice. All you need to do is open the Fi app and look for the fund you wish to invest, and begin your investment journey in a few simple steps. However, It is advised that you do a thorough research and align your goals before taking the plunge.


1. Which are the best multi asset funds?

There are several fund schemes for you to choose from. However, based on 3-year returns, performance stability, protection against volatility and overall steadiness, these are 3 of the best asset allocator funds out there currently.

  • Quant Multi Asset Fund
  • ICICI Prudential Multi-Asset Fund
  • Aditya Birla Sun Life Financial Planning FoF Conservative Plan

2. Are multi-asset funds good?

Multi-asset funds are great for those who are not willing to take a high risk and are satisfied with steady returns. They come with automatic portfolio diversification and rebalancing, thus keeping your risks under check while aiming to make the most out of market movements. To get the best out of these funds, you must plan to stay invested for at least 3 years or so. For lesser investment periods, or higher risk-based returns, you may consider other investment tools.

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