Multi Asset Allocation Mutual Fund?

A multi-asset allocation fund diversifies investments across at least three asset classes, such as stocks, bonds, and commodities. Actively managed to optimize performance, these funds help reduce risk, provide more stable returns, and offer broad market exposure.

4 mins

02-January-2024

Multi Asset Allocation Funds are hybrid investments that are required to allocate a minimum of 10% across a minimum of three asset classes. These funds generally comprise a blend of equities, fixed income securities, and another asset class such as gold or real estate.

In this comprehensive guide, we will explore multi-asset allocation mutual funds, examining their unique characteristics and the advantages they offer to investors. Additionally, we will navigate the process of investing in these funds.

What are multi-asset allocation mutual funds?

Multi-asset allocation funds offer investors a diversified portfolio, combining debt, equity, and an alternative asset class. These funds utilise sophisticated asset allocation strategies to navigate fluctuating market conditions, aiming to deliver optimal risk-adjusted returns.

Features of Multi-Asset allocation of fund

Characteristics of Multi-Asset Allocation Funds

1. Risk mitigation

Multi-asset funds offer security by spreading risk across multiple asset classes, reducing the potential impact of volatility associated with any single asset class.

2. Impartiality

Multi-asset allocation funds maintain neutrality towards any specific asset class, ensuring a balanced approach to investment.

3. Consistent income and growth

These funds provide a steady income stream by diversifying across asset classes, shielding against disruptions in any one class and maintaining a steady growth trajectory.

4. Diversification

Multi-asset funds enrich portfolios with a variety of assets, such as gold, known for stable returns, counterbalancing the volatility often associated with equities.

5. Volatility control

Through strategic allocation, multi-asset funds help mitigate portfolio volatility by managing price fluctuations across different asset classes.

6. Adaptability to market conditions

The portfolio composition of multi-asset allocation funds can be adjusted in response to prevailing market conditions, ensuring flexibility and potential optimization of returns.

Purpose of Multi-Asset Allocation funds

The fund seeks to optimise portfolio diversification by allocating investments across various asset classes. This strategy mitigates risks inherent in single-asset investments.

Regarding tax implications, short-term capital gains (held for less than 3 years) are subject to ordinary income tax rates. Long-term capital gains (held for 3 years or more) are taxed at a concessional rate of 20% with indexation benefits.

Benefits of investing in multi-asset allocation mutual funds

There are several benefits of investing in multi-asset allocation mutual funds, including:

1. Diversification

Multi-asset allocation mutual funds invest in a minimum of three asset classes, which helps diversify your portfolio and reduce overall risk. Investing in a diversified portfolio can help you achieve your financial goals while minimising risk.

2. Stable returns

These funds offer may stable returns as they invest in a combination of equity, debt, and other asset classes. These funds are suitable for investors who are looking to take lower risks.

3. Professional management

Multi-asset allocation mutual funds are managed by professional fund managers who have expertise in managing different asset classes. These fund managers use their knowledge and experience to make informed investment decisions that can help maximise returns and minimise risk.

4. Diversification and risk mitigation

By spreading investments across various asset classes (stocks, bonds, real estate, etc.), these funds help reduce overall portfolio risk. When one asset class experiences a downturn, others may perform better, cushioning the impact. This diversification creates a more balanced and resilient portfolio.

5. Flexibility and adaptability

Unlike traditional funds focused on a single asset class, multi-asset funds allow for adjustments. Investors, in consultation with a financial advisor, can modify the asset allocation based on their risk tolerance, changing market conditions, and evolving investment goals. This flexibility ensures the portfolio stays aligned with your financial objectives.

6. Simplified portfolio management

Multi-asset allocation funds provide a pre-built, diversified portfolio, eliminating the need for individual investors to actively manage numerous asset classes. This can be particularly beneficial for those who lack the time, expertise, or resources to create and maintain their own investment portfolios.

7. Automatic rebalancing

These funds often feature automatic rebalancing, which helps maintain the target asset allocation over time. As market fluctuations cause the weightings of different asset classes to drift, rebalancing brings the portfolio back into alignment with the desired risk profile. This helps capture potential returns and manage risk more effectively.

8. Accessibility and convenience

Multi-asset allocation funds generally offer easy entry and exit options, often with low or no entry/exit loads depending on the specific fund and holding period. This allows for greater liquidity and flexibility in managing your investment.

Who should invest in a multi-asset allocation fund?

Whether you are a first-time investor or a seasoned one, a multi-asset allocation fund is considered to be a good way to invest in the market. This is due to its diversification factor that allows to dilution of the risks of investing in the market.

If you are a first-time investor, you can experiment by investing in a multi-asset allocation fund as it will allow you to understand how different assets perform and pick your preferred asset for further investment.

Apart from new investors, investors who have a low appetite for risk can also find multi-asset allocation funds beneficial since they will get a diverse portfolio along with the diluted risk factor.

For investors who are more inclined towards having long-term financial goals, multi-asset allocation funds can be useful with their growth potential and lower-risk factor.

When you invest in a multi-asset allocation fund, your funds are managed by professional portfolio managers who, with their knowledge of the market, help your portfolio grow.

Limitations of the multi-asset allocation funds

While multi-asset allocation funds offer diversification and professional engagement, they have their own limitations as well. They usually have higher management fees as compared to single-asset funds. This can reduce your returns, especially in low-yield environments. Since these funds are diversified, for a common man, it might be difficult to understand the nuances of the assets in which your funds are invested.

Since multi-asset funds are managed by market professionals, you, as an investor, give up control over the funds if you wish to alter them as per your preference. This additionally increases the dependability on the skills and judgement of your fund manager, which might not always be fruitful.

Additionally, while the risk is lowered with diversification, investors of multi-asset fund allocation might miss out on the high-return potential of single-asset allocation.

Taxation of multi-asset allocation fund

Multi-Asset Allocation Funds exhibit varying equity exposures, leading to diverse tax treatments on their returns. The 2020 Budget amendments introduced specific tax regimes based on the fund type.

Fund Type	Short-Term Capital Gains Tax	Long-Term Capital Gains Tax
Equity-Linked Scheme	15% irrespective of income tax slab (holding period less than 12 months)	Tax-free up to INR 1 lakh. Anything above INR 1 lakh is taxed at 10% (holding period more than 1 year)
Debt-Linked Scheme	Added to your overall income and taxed as per the income slab that you fit in (holding period less than 36 months)	20% with indexation (holding period more than 36 months)

How asset allocation works in multi-asset funds?

Multi-asset allocation funds employ a strategic approach to capital deployment, diversifying investments across various asset classes. The fund manager's decisions are informed by rigorous market analysis and the fund's specific investment objectives.

In periods of market turbulence, for instance, the manager may strategically increase the fund's allocation to bonds, known for their relative stability compared to equities. This adaptability is a cornerstone of multi-asset allocation strategies. Asset allocations are not fixed but rather dynamic, adjusting in response to economic indicators, market forecasts, and regulatory developments.

This dynamic approach enables the fund to optimize returns while mitigating risk, as the portfolio can be tailored to navigate diverse economic cycles and market conditions.

List of multi-asset allocation mutual funds

Key takeaways from Multi-Asset Allocation Fund

1. Highlight flexibility and risk management

These funds cater to a wide range of investors by offering a spectrum of risk profiles. They can be conservative during volatile markets and more aggressive during growth periods. This flexibility allows investors to choose a fund that aligns with their specific risk tolerance and investment goals.

2. Emphasise all-in-one solution

These funds offer a comprehensive investment solution, combining diversification, convenience, customisation options, and active management. Investors can benefit from a well-rounded portfolio tailored to their needs without the hassle of managing individual assets.

3. Focus on benefits for different investors

Looking for diversification and convenience? These funds offer a one-stop solution. They cater to both conservative and growth-oriented investors by adjusting their strategy based on market conditions. Additionally, you can often customize your investment within the fund to further align with your goals.

Conclusion

In conclusion, understanding various investment options is crucial. Multi-asset allocation mutual funds, combining equity, debt, and other assets, seek to generate capital appreciation by lowering risk by diversification across asset classes. With professional management, they provide a strategic choice for long-term financial success.

If you are interested in investing in multi-asset allocation mutual funds, Bajaj Finserv offers a wide range of funds to choose from. Begin securing a prosperous future by investing in mutual funds on Bajaj Finserv.

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Frequently asked questions

Multi-Asset Allocation Funds are diversified investment vehicles designed to allocate capital across at least three distinct asset classes, each representing a minimum of 10%. These funds often combine equities, fixed-income securities, and additional asset categories such as precious metals or real estate.

Multi-asset allocation funds offer a versatile investment strategy for individuals seeking broad diversification and risk mitigation. These funds are particularly well-suited for investors with a lower risk appetite or limited time for active portfolio management, as they provide a professionally managed and diversified mix of asset classes.

Multi-asset funds can be considered relatively safe compared to single-asset investments. They diversify your portfolio across different asset classes (stocks, bonds, commodities, etc.), reducing risk. However, they're not risk-free. Market fluctuations can still impact their performance. It's essential to assess your risk tolerance and consult with a financial advisor before investing.

Multi-asset strategies provide a versatile framework for achieving diverse investment objectives, enabling investors to allocate capital across various securities and sectors. Such strategies offer a higher degree of diversification compared to single-asset class investments, such as fixed income or equity funds.

Yes, multi-asset funds are subject to taxation on capital gains, dividends, and interest income, similar to other investment funds.

Equity funds primarily invest in stocks, while multi-asset funds allocate across various asset classes including stocks, bonds, and commodities for diversification.

Multicap funds invest in stocks across market capitalizations, while multi-asset funds spread investments across different asset classes beyond just equities, aiming for broader diversification.

All market-linked investments involve a certain degree of investment risk. That said, the diversified nature and composition of multi-asset allocation funds make them relatively safer than pure equity funds. By investing in different assets, these funds ensure that the poor performance of a particular asset class does not severely impact your portfolio’s returns, thereby lowering volatility risks.

Multi-asset allocation funds are taxed based on the holding period and portfolio composition of the fund. If the fund has more than 65% of equity assets, it will be taxed as an equity fund. An LTCG tax of 12.5% will be applicable on capital gains of over Rs. 1.25 lakhs if the fund is sold after 1 year. If units are sold before 1 year, a 20% STCG tax will be levied on the capital gains. Alternatively, if the fund has more than 65% debt asset allocation, it will be taxed as a debt fund. A 12.5% LTCG tax will be applicable if the fund is sold after 24 months. STCG tax will be at slab rate for debt-oriented multi-asset allocation funds.

You can invest in a multi-asset allocation fund through the Bajaj Finserv Platform. You simply need to log into your Bajaj Finserv account (or create one if you haven’t already), select the fund category, and choose a suitable fund that aligns with your investment objective and risk appetite. Next, fill in your transaction details and complete payment using any one of the available payment options, such as UPI and Direct Pay.

Yes. Multi-asset allocation funds do not come with mandatory lock-in periods. This means you can redeem your investment by selling your MF units anytime. However, there may be a certain exit load applicable on the redemption of units before a certain period. For most funds, this minimum investment period extends to 1 year.

Multi-asset allocation funds are subject to various investment risks, the main one being market risk. Market risk is the risk of the fund’s value fluctuating due to changing market conditions. Moreover, multi-asset allocation funds are also prone to interest rate, currency, and credit risks.

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