What are Multi-Asset Allocation Funds, How Do They Work and Who Should Invest?

What are Multi-Asset Allocation Funds?

As the name indicates, multi-asset allocation funds invest in a mix of asset classes and help in diversifying investments to manage investment risk more efficiently. The allocation of assets and the related composition will differ across investors. This asset allocation is constantly tracked and adjusted by the fund managers depending on the economic indicators and market trends.

The impact of volatility can be easily mitigated via diversification. As per the SEBI (Securities and Exchange Board of India) regulation, the minimum percentage that a multi-asset fund must invest in three asset classes is 10%. Individuals, after investing in a multi-asset fund, come across a unique combination of asset classes. They do not have to conduct research and look after individual investments.

Such type of fund intends to bring together the hedging benefit of gold investments, stability of fixed earnings, and equity’s growth potential in a single professionally-managed portfolio. It helps in curbing the volatility in returns and boosts the overall investing experience. 

Features and Benefits of Multi-Asset Allocation Funds

Here are the notable features and benefits of the Multi-asset allocation funds:

• Diversification

The multi-asset allocation fund allows investors to allocate assets across different asset classes. This ensures diversification, which helps investors get away with market volatility and minimise investment risk. In addition, investors can secure their portfolio from the risk of depending only on one asset class and derive stable income.

• Risk management

The success of investment depends on how effectively investors manage risk, and investing in multi-asset allocation funds will help investors efficiently manage risks. As the investment is made across varied asset classes, the risks related to market fluctuation can be managed better with superior downside protection. The portfolio can be made resilient once a proper balance between volatile and stable assets has been maintained.

• Flexibility and adaptability

Another notable advantage of the multi-asset allocation funds is that it bestows investors with the utmost adaptability and flexibility.  As investors can rebalance the asset allocation as per the emerging scopes or for dodging the risks, they can make the most of these funds. It helps to align the portfolio in a way that caters to the investment goal of the investor and the ever-changing market landscape. Investors must have a deep insight into what asset allocation is, benefits and strategies involved in it. This helps them choose suitable investment options.

• Professional expertise

The multi-asset allocation funds are managed by investment professionals who have experience in analysing and opting for assets. These professionals have deep market insights. Hence they can make apprised investment decisions and help investors efficiently manage the fund.

• Portfolio rebalancing

The multi-asset allocation fund also features automatic portfolio rebalancing, which helps investors make sure that the investments made across different asset classes are well distributed. This helps in generating higher returns. Through asset allocation and rebalancing as per changing market conditions, investors can sail through the market’s ups and downs.

• Unrestricted entry and exit

With the multi-asset allocation fund, investors do not have to pay any amount to enter and exit the scheme subject to applicable terms and conditions. These mutual funds allow investors to redeem 10% or less of their initial investment before 1 year without any exit load. If more than 10% of the units allotted are redeemed in one year, investors will have to bear an exit load. However, if the investment is redeemed after one year or more, investors do not have to pay any exit load.

• Ready-made portfolio

Creating a tailor-made investment portfolio is not easy for maximum investors to afford as it involves the assistance of a professional. However, with multi-asset allocation fund investment, investors can avail of a customised investment portfolio besides reaping the benefits of a well-balanced risk and reward investment option.