‘Safe’ multi asset funds offered 11.73% in one year, over 20% in three years

Several mutual fund investors are taking a closer look at multi cap funds these days. Multi asset funds are topping the returns chart in the hybrid fund category with 11.63% returns in one year. Aggressive hybrid schemes and dynamic asset allocation funds offered lower returns in the same period. Multi asset funds offered an impressive 19% average return in the three-year horizon. Are you tempted?

Multi asset funds are mandated to invest in three asset classes – typically equities, debt, gold. As per Sebi norms, they should invest atleast 10% in three asset classes. Mutual fund advisors say the portfolio composition makes them relatively safe. However, you should remember that it is entirely up to the fund manager to decide on investments beyond the mandatory 10% allocation. Based on the outlook of the fund manager, he may decide on the allocation.

A closer look at the portfolio of toppers in the category revealed that these schemes have around 50-70% in equity, 10-20% in debt, 20% in gold, real estate, and so on. As you can see, you should not get into these schemes thinking they are virtually risk-free. An equity exposure of 50% should not be taken lightly. Equity is risky. Even if it is a small percentage of the total portfolio. So be mindful of this fact.

That also brings us to the desired horizon when you are investing in these schemes. Don’t fall for the sales pitch and invest in these schemes for a short period of time, say, one or two years. Even three years are too short to tackle the volatility in the stock market. So get in only if you can invest for at least five years.