Piyush Prajapati 27 May, 2024

Multi-Asset Allocation Fund: Your Shield in Volatile Markets

Whether you're taking your first steps into the world of investing or you're a seasoned investor cautious at all-time highs, volatility can be challenging. No need to worry,we're here to help.Our comprehensive guide on multi-asset allocation funds offers a clear roadmap for investors to make informed investment decisions.

Multi-asset mutual funds are investment vehicles that diversify holdings across various asset classes, such as stocks, bonds, commodities, and real estate. This diversification aims to optimize returns while managing risk.

Multi-asset mutual fund can be suitable for a wide range of investors, particularly those who:

1.Seek Diversification Without Complexity : Investors who want a diversified portfolio but lack the time, expertise, or resources to manage multiple individual investments might find multi-asset mutual funds appealing. These funds provide diversification across various asset classes within a single investment.

2. Have Moderate Risk Tolerance : Multi-asset funds are often designed to balance risk and return, making them suitable for investors with a moderate risk tolerance. The mix of stocks, bonds, and other assets can help cushion against volatility compared to investing solely in equities.

3. Prefer Professional Management : Individuals who prefer to have their investments managed by professional portfolio managers can benefit from multi-asset funds. These managers make decisions about asset allocation and adjustments based on market conditions and investment goals.

4. Aim for Long-Term Growth and Income : Investors seeking both capital appreciation and income might choose multi-asset funds. These funds typically include a combination of growth-oriented assets (like stocks) and income-generating assets (like bonds), providing potential for steady returns over time.

5. Investors with Lower Capital : Since multi-asset mutual funds offer diversification in one package, they are accessible to investors with lower capital who might not have enough funds to diversify effectively on their own.

Benefits of Multi-Asset Allocation funds are as follows:

(I) Diversification : Spread risk across various asset classes, reducing the impact of poor performance in any single category.

(II) Professional Management: Mutual funds distribute risk and reduce the effect of inflation on the portfolio as a whole by investing in a variety of asset types, such as stocks, bonds, and goods. Diversification helps reduce the risk of inflation.

(III) Balanced Risk-Return : Designed to provide a mix of growth and income with moderated volatility.

(IV) Convenience : Single investment offers diversified exposure, simplifying portfolio management.

(V) Flexibility : Various fund types available to match different risk tolerances and investment goals.

(VI) Accessibility : Suitable for investors with lower capital, providing broad diversification in one package.

(VII) Automatic Rebalancing : Regular adjustments to maintain desired asset allocation without investor intervention

(VIII) Income and Growth : Regular adjustments to maintain desired asset allocation without investor intervention

(IX) Cost Efficiency: Avoids the higher transaction costs of managing multiple individual investments.

Why it is the right time to invest in Multi Asset Allocation Funds

Today’s global economy faces significant volatility due to economic uncertainties and geopolitical tensions, such as the risk of major economies entering recession and conflicts like those between Russia-Ukraine and Israel-Palestine. This heightened risk environment forces investors to carefully consider their choices, balancing the potential for returns against the need for safety.

In such volatile times, multi-asset allocation fund offers an attractive solution. These funds invest across equities, debt, commodities, and other asset classes, providing a balanced approach that seeks to optimize returns while managing risk. With exposure to multiple assets, multi-asset funds are well-positioned to navigate market fluctuations, making them a strategic choice for investors aiming for stable, diversified growth.

Taxation of Multi-Asset Allocation Fund

Taxation of multi-asset allocation funds can differ depending on the scheme, as there's no mandate for these funds to maintain more than 65% of their assets in debt or equity. While many investors prioritize equity funds for tax efficiency, it's important to thoroughly review scheme-related documents to grasp how the fund intends to allocate equity within its portfolio.

Investors have the opportunity to diversify into other asset classes alongside equity, yet they benefit from the taxation advantages typically associated with equity investments.

Top Performing Multi Asset Allocation Funds

Scheme Name Past Performance
1 Year 3 Year 5 Year
ICICI Prudential Multi Asset Fund 34.00% 23.18% 19.90%
HDFC Multi Asset Fund 29.16% 14.94% 14.73%
Axis Multi Asset Allocation Fund 28.24% 15.66% NA
SBI Multi Asset Allocation Fund 23.47% 13.94% 14.49%
Tata Multi Asset Opportunities Fund 20.72% 10.02% 12.76%

Returns are as on 27/05/2024. Past performance may or may not be sustained in the future.

Disclaimer - Mutual Fund Investments are subject to market risks. Read all scheme related documents carefully before investing.

Piyush Prajapati 27 May, 2024

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