Multi asset allocation funds invest in three asset classes- equity, debt and one more asset class like gold, real estate etc. These are hybrid schemes that are mandated to have a minimum of 10% in each of the three asset classes.
According to AMFI data, multi asset allocation funds saw the highest inflows worth Rs 1,711.42 crore in December. The number was greater than most equity and debt categories put together. Only small cap funds, mid cap funds and ultra-short duration funds were ahead of multi asset allocation funds in terms of inflows. However, the inflows were largely helped by an NFO, which was responsible for 70 % of the net inflows into the category.
The new fund offer of Baroda BNP Paribas Multi Asset Fund garnered a total of Rs 1,235 crore in December. This is what pushed the inflows of the category up. Mutual fund managers say that even though multi-asset funds are a great product, not everyone needs them.
“Whenever equity returns slow down, the interest in most asset allocation products increases. However, most of these funds still have the highest allocation (read more than 65 %) in equities, making their eventual performance largely a function of equity markets. Having said that, they do deliver decent inflation adjusted returns with lower volatility. It’s therefore important for investors to evaluate them over a complete market cycle and appreciate the lower volatility they offer. These products are relevant for an investor with a moderate risk profile. Investors not equipped to do their own asset allocation could also invest in these. In a more informed world, I strongly recommend managing asset allocation at a portfolio level, through different funds in each asset class,” says Subir Jha, Founder, Buckspeak, a wealth management firm, based in Hyderabad.
On the returns front, the category has had a decent record. In the last one year, some schemes in the category have offered returns between 9-12%. ICICI Prudential Multi Asset Fund is topping the category with 12.51% in one year followed by Kotak Multi Asset FOF with 10.28% and Quant Multi Asset Fund with 9.28%.
Sanjay Chawla, CIO of Baroda BNP Paribas Mutual Fund, says that multi-asset funds are a great way to get an optimum risk-adjusted return in your portfolio with minimum effort. “Different asset classes play different roles: Equity is for capital appreciation; Debt is for income generation and Gold is a good hedge against inflation and geo-political events. Having the right combination ensures optimum risk adjusted return for the portfolio. Any investor looking for convenience of a single fund, may look at a multi asset fund. If the equity component is more than 65% then you will have the benefit of equity taxation for investors. If one invests separately in each category, then the taxation for debt and Gold would be different. A multi-asset manager would also make active asset allocation decisions based on underlying returns of each asset class to balance the portfolio effectively,” says Chawla.
Fund managers and mutual fund advisors agree that this product is best suited for those investors who do not or can not manage their asset allocation mix. Investors starting with a small amount and seeking diversification in one product can start with these funds. However, an informed investor, or someone with help of a financial planner or an investor with a decent-sized portfolio should look at diversifying according to her risk profile and investment strategy.