Why investing in a multi-asset fund makes sense in a volatile market? We explain (2024)

As we bid farewell to 2023, we have seen that the markets have been volatile throughout, on account of market narratives of geopolitical uncertainties, high inflation, tight monetary policies, and slowing global growth – the underlying conditions gave us one clear investment message i.e. investment across asset classes is the key for generating optimal returns.

The concept of diversification to manage risk in order to optimise portfolio returns and risk is a well-established theory in the investment market. Diversification or investment across asset classes essentially means cultivating an investment approach to combine different asset classes which are having low or negative correlation to each other to reduce volatility associated to a particular asset class on the portfolio. Effective asset allocation requires a strategic and disciplined investment approach that balances risk and reward in your investment portfolio, for a well-rounded and successful investment strategy.

A multi-asset fund offers a diversified portfolio across asset classes, where the allocation of portfolio and review/rebalancing is being professionally managed through relative attractiveness of asset classes based on valuation driven and evidence-based prediction on market dynamics.

The funds in the category endeavour to combine the high growth potential of equity, relative stability of fixed income and the hedging properties of gold in one portfolio to help mitigate portfolio volatility in returns thereby improving risk adjusted returns of the portfolio.

In addition to the above benefits, multi-asset funds also offer a tax efficient way of asset allocation as the scheme enjoys the exemption from taxation arising from capital gains due to frequent portfolio rebalancing and reduces the tax incidence. Tax will be paid by the investor at the time of redemptions of the scheme units on the realised gains. Additionally, funds which are maintaining minimum 65% equity exposure are classified as equity-oriented funds wherein taxation is lower than fixed income and commodities such as gold ETF.

Multi asset funds are structured as an open-ended scheme in the multi -asset category, investing in asset classes such as equity, fixed income, commodity via gold and silver ETFs etc, the schemes in this category use a disciplined asset allocation strategy for investment into various asset classes.

The multi asset fund generally uses valuation driven asset allocation strategy to provide dynamic asset allocation to asset classes such as equity, fixed income and commodity etc based on relative attractiveness of these asset classes.

Thus, multi asset fund can be considered as an easy access to a diversified portfolio of equity, fixed income and gold in a process driven and tax-efficient way. It aims to provide optimal asset allocation based with the objective to maximise return and minimise risk for optimising risk adjusted returns.

Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.