What is a multi-asset allocation fund?
A multi-asset fund is a type of mutual fund that invests in various asset classes such as debt, stocks, fixed income strategies, real estate, index funds, financial derivatives and mutual funds. commodities like gold. According to the SEBI (Securities and Exchange Board of India), multi-asset allocation funds can offer a certain level of diversification. The diversity offered by this mutual fund system could allow managers of the system to balance risk with reward and aim for commensurate returns over the long term.
If you’re a retail investor, here are a few reasons why you might want to consider multi-asset allocation funds:
Comparatively less volatility
As you may already know, the performance of mutual funds is tied to the performance of the markets. That’s why you often hear that investors should assess their risk appetite and time horizon before investing in mutual funds. For example, if you invest in a stock mutual fund, chances are it carries higher risk if the market shows signs of a downtrend. However, this is not the case with multi-asset mutual funds as they invest in all asset classes. Since each asset class behaves differently during a market cycle, the potential loss or gain can also be balanced.
Multi-asset allocation systems, by virtue of their name, can invest in multiple asset classes. Therefore, through a single investment, you can invest in more than one type of asset class. This inadvertently allows you to diversify your financial portfolio. This diversification can be considered as an opportunity towards the constitution of a perennial heritage corpus, basic objectives. It is prudent to make an informed decision by going through all the details of the Scheme Information Document (SID) before choosing to invest.
Potential for sustained long-term returns
Since multi-asset allocation funds invest in a variety of asset classes, it is likely that some asset classes will outperform others over time. This could allow you to protect your capital in a scenario where an asset class might underperform. Ultimately, it can also allow you to achieve balanced and proportionate returns over the long term by taking advantage of market volatility. This investment strategy can be useful if you’re looking to achieve your long-term goals.
In addition to the above, the following can help you determine whether you should invest in multi-asset allocation funds:
- Investments in multi-asset allocation funds may have the potential to be more tax efficient than investments in a single asset class
- Although the risk can be diversified, it may not be possible to aim for higher returns over a short investment horizon
- If you are looking to build a corpus over the long term, you may want to consider investing in multi-asset allocation funds, as they may perform positively over multiple market cycles.
- At the same time, these mutual fund schemes can allow you to take advantage of bull market cycles
It may be helpful for investors to note that due to this diversification, these plans may not be able to provide equivalent results to others that invest in single asset classes.
Before investing, it is important that you take a close look at your risk appetite, time horizon and goals in order to make sound investment decisions.
An investor education initiative.
Visit www.icicipruamc.com/note to learn more about the process for completing a unique know-your-client (KYC) requirement for investing in mutual funds. Investors should only deal with registered mutual funds, details of which can be checked on the SEBI website http://www.sebi.gov.in/intermediaries.html. For questions, complaints and grievance redress, investors may contact the AMCs and/or the Investor Relations Officers. In addition, investors can also file complaints on https://scores.gov.in if they are not satisfied with the resolutions given by the AMCs. The SCORES portal allows you to file your complaint online with SEBI and then view its status.
Investments in mutual funds are subject to market risk, read all plan documents carefully.