A combination of asset classes that are used as an investment is known as Multi-Asset Allocation Mutual Funds. Typically, it comprises of more than just one asset class and intends to create a portfolio of assets. The distribution of assets and their composition tends to vary depending on an individual investor.
As per the Brinson study, 93.4% of a fund’s average returns can be accredited to proper asset allocation. These schemes aim to offer a steady income and capital appreciation to the investors by allowing them to invest in a well-balanced portfolio of investments.
Through a multi-asset allocation fund, an investor gets to invest in equity and debt instruments, equity-oriented schemes, and gold and gold-oriented investment instruments. An investor can invest up to 80% of capital in either of the asset class. Mutual Funds units and stock lending up to 20% of assets can be a probable investment prospect for the said fund.
Generally, such funds can be further categorized as –
In the case of Risk tolerance funds, the asset allocation depends entirely on an investor’s risk appetite. Investors with a better risk-appetite would be inclined to allocate more in equities, while conservative investors would divert their attention towards fixed income.
In case of Target-date funds, the asset allocation tends to vary depending on the investor’s preferred time-horizon.
The purpose of these funds is to enhance and diversify an investment portfolio through multi-asset allocation across several asset classes. Through such an action, the fund further aims at cushioning the risks that are associated with investing in just one class of asset.
The multi-asset allocation fund is liable for taxation. If an investor holds the funds for less than 3 years, they will be liable to tax on their short-term capital gain tax, as per their predefined slab.
If they hold on to their investment for more than 3 years, a rate of 20% with indexation will be levied on their long-term capital gains.
The multi-asset allocation Mutual Funds are deemed suitable for investors who have a low-risk appetite but want to enjoy steady returns on their investments.
The multi-asset allocation helps such investors to even out the risk that comes along with investing in just one type of asset class.
Additionally, it ensures a steady flow of income for the investors even at a time when some asset classes are underperforming than usual.
The features of multi-asset allocation fund and their associated benefits prove to become the significant advantages for the investors.
Multi-asset allocation enables investors to expose their portfolio to different asset classes with various risk-reward factors. It facilitates investors to lower their risk and to derive steady earnings through different market cycles.
Rebalancing portfolio is quite important to ensure that investments are well-distributed in those asset classes that are generating more returns than others. The multi-asset allocation Mutual Funds come with the option of automatic portfolio rebalancing that helps investors in all sorts of ways. Since the market tends to be a volatile place, rebalancing portfolio and reallocating assets is the key to tide through the ups and downs.
Not everybody can afford to create a tailor-made their investment portfolio by a professional. However, when an investor invests in multi-asset allocation funds, they not just avail a well-balanced investment option of risk and reward but also avail a ready-made portfolio. Investors can avail the benefits of different types of asset classes by investing in just one type of fund.
The said fund does not charge an investor any amount either to enter the scheme or exiting it. The investors can avail free entry and exit if they have redeemed 10% of their investment before a year has passed.
If the remainder of the investment is not redeemed in a year, an exit load is charged at the rate of 1%. However, no exit load is levied on it, if it is traded after a year.
Even though the multi-asset allocation fund has not been through a full market cycle, significant returns can be earned in a short period. Investors with experience in asset allocation and portfolio rebalancing may be able to earn the full benefit from such funds.
List of AMC in India