Multi-asset allocation funds: Why you should consider investing in themnews24

To secure one’s future in India financial education is extremely important. Still, it is a surprise to see that basic financial market education, investment themes, asset classes etc., are seldom discussed in early school curriculum.

In the given situation hence, it is important for various educational boards to consider making equity market investing knowledge along with the basic understanding of different kinds of asset classes mandatory in junior classes.

This will help students in gaining a fundamental idea of how the Indian economy works and what are different kinds of asset classes they can look forward to as investment tools?

Let us hence discuss these concepts briefly:

What is an asset class?

An asset class groups investments with similar characteristics and market behavior. Some common examples of the same are stocks, bonds, cash equivalents, real estate, and commodities etc.

Each of the above discussed asset classes varies in risk and return. Further, proper diversifying across asset classes helps balance risk and returns, enabling investors to achieve financial goals while reducing portfolio volatility. This strategy is termed as multi-asset allocation.

What are multi-asset allocation funds?

Multi-asset allocation funds are investment vehicles or asset classes that diversify across various different asset classes. They invest in asset classes like equities, fixed income, commodities and metals like gold.

This diversification helps in managing risk while also ensuring better returns compared to single asset class based investments. As there is no asset class that can be termed as the best, because every asset class has its pros and cons. 

Why should you consider multi-asset allocation funds?

Now the reason why investors should consider going for multi-asset allocation funds is that these funds are ideal for investors seeking a balanced investment strategy with balanced risk i.e., this option is for people who are not comfortable with taking unlimited or very high risk for example which comes with direct equity investing.

As the possibility of capital depreciation is immense in equities. On the other hand fixed deposits are safer investment bets with lesser risk but a marked difference in long-term wealth creation in comparison to equities. That is why multi-asset allocation funds are funds that lie somewhere in between both the extremes.

Hence, by spreading investments across different asset classes, they can potentially reduce volatility, risk and enhance returns over the long term. This makes them suitable for both conservative and aggressive investors.

How do multi-asset allocation funds work?

Multi-asset allocation funds use a dynamic approach towards investing. They adjust the allocation of assets based on market conditions. They took into consideration the ongoing economic conditions and global developments based on different sectors of the economy.

Fund managers participate actively in managing the portfolios of these funds. This helps in proper management of the risk exposure and return potential these funds can offer.

What are the benefits of investing in multi-asset allocation funds?

So these funds basically are a kind of mutual funds only. The only difference is that their investments are well structured and are not entirely in a single asset class. Mutual funds generally invest in equities directly. Now let us understand the benefits of investing in multi-asset funds:

• Diversification: By investing in multiple asset classes these funds reduce the risk associated with any single investment. This also prevents over-exposure to volatility or underperformance due to a single asset class.
• Professional management: Experienced fund managers handle the asset allocation under this fund. This allows investors to benefit from their expertise.
• Flexibility of booking out of the investment: These funds can adapt to changing market conditions. This provides for a responsive investment strategy. Investors can also book out of open ended funds if they are not getting the desired returns. Still, it is important to understand the terms and conditions associated with the selected multi-asset fund before thinking of investing in the same.
• Accessibility of services: Investors can start with a relatively low amount. This makes these funds accessible to a wider range of customers. The goal hence is to enhance financial inclusion by providing as many individuals as possible with the opportunity of investing in the Indian growth story.

What should you consider before investing?

Now before investing in multi-asset allocation funds it is important for investors to carefully analyze their financial goals, risk taking capacity, investment horizon etc.

Once an investor is clear about these things only then one should go ahead with investing in these funds. It is also advised for investors to consult SEBI registered investment professionals if they face any challenges, doubts or issues with regards to their investment strategies.

Understanding one’s unique profile will help him or her in selecting the right fund that aligns with their objectives.

Some of the leading multi-asset mutual funds that investors can consider investing in post proper consultation with registered investment advisors are:

• Quant Multi-Asset Fund
• ICICI Prudential Multi-Asset Fund
• UTI Multi-Asset Allocation Fund
• HDFC Multi-Asset Fund
• Shriram Multi-Asset Allocation Fund
• SBI Multi-Asset Allocation Fund

Hence, above are just some of the multi-asset funds available to investors at large. Post proper analysis, reading, consultation with registered investment advisors these funds can offer a compelling option for investors looking to balance risk and return.

By diversifying across various asset classes and benefiting from professional management, these funds can be a valuable addition to one’s investment portfolio.

(Mutual fund investments are subject to market risks, read all scheme related documents carefully.)