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Why multi asset fund should be a part of one’s portfolio



Multi asset funds are a category within the hybrid mutual offerings. In this category, a fund typically invests across three or more different asset classes. The most common asset classes invested by these schemes are: equity, debt, gold, real estate investment trusts (REITs), infrastructure investment trusts (InvITs) to name a few. Recently, fund houses have also started adding international equity to the portfolio mix.

By investing in a multi asset fund, an investor can be rest assured that the corpus will be spread across various asset classes, thereby bringing in the much needed diversification as well as auto asset allocation, thereby providing an optimal risk adjusted return experience. This is because different asset classes move in different directions in various phases of the economy. It is very rare for both equity and debt markets to perform equally well at the same period. Similarly, gold tends to do well when economic outlook is gloomy. For instance, in March 2020 when the domestic equity market corrected sharply due to the pandemic, high quality long term treasuries went up, lower quality debt fell dramatically, but gold lived up to its safe haven status during the same period. This shows that by investing across various asset classes, the net impact on the portfolio tends to be minimal as compared to investing in a single asset class.

Another added advantage of this category funds is the in-built asset allocation it brings along. Several studies time and again have proven that for long term wealth creation optimum asset allocation is the key. Therefore, such a portfolio will tend to do well in different environments and scenarios. Since we do not know which asset class is likely to deliver returns, the optimal approach is to spread bets across asset classes.

Role of Various Asset Classes

Equity, in your portfolio, plays the role of wealth creator but goes through various phases of consolidation and growth during the process of wealth creation. Debt aims to offer stability to your portfolio and provides opportunities for consistent returns over a longer time horizon. Gold, which also comes with its phases of consolidation and growth, acts as a good hedge and can help in protecting your portfolio against inflation and global risks.


Relevance of Multi Asset Fund

Asset allocation for a retail investor is no easy task. Not everybody has the luxury of getting a tailor-made their investment portfolio charted out by a professional. This is where solution in the form of multi asset fund comes in. When an investor invests in multi-asset fund, they not just avail a well-balanced investment option of risk and reward but also avail a ready-made portfolio. In effect, through just one fund, an investor can avail the benefits of different types of asset classes. It is very important to not use these schemes for short-term investments. The key is to stay invested for longer investment horizon of at least five years and above.

Fund Selection

For an investing looking to invest into a multi asset fund, there are several offerings available for an investor. While choosing a fund to invest into, remember to check the long term track record of the fund, the pedigree of the fund house, how the asset allocation calls of the fund manager has played out over time etc. For a perspective investor, all these points will provide a fair understanding of how the investment experience if likely to be given the capability of the fund manager.

One of the funds which has been a consistent performer in this area and has delivered a positive investment experience is the ICICI Prudential Multi Asset Fund. The fund managed by seasoned fund manager S Naren has delivered returns to the tune of 60% over the last one year. This is a 22.4% outperformance over its benchmark index. Such a trend of outperformance can be seen across varying timeframes. Since the scheme tends to take some contrarian calls, there could be a brief period of underperformance but over the long term, the scheme is expected to give consistent returns.  The fund has generated a CAGR of 21.6% since inception, which is a testament of the prudent asset allocation calls taken in the fund.

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