Multi-asset allocation funds offer a balanced and diversified approach to investing, helping investors achieve growth, stability, and income while effectively managing risks, thus making them a valuable tool for building portfolios and ensuring wealth creation
In the ever-evolving investment landscape, multi-asset investing has emerged as a dynamic strategy for constructing resilient and balanced portfolios. By combining the strengths of various asset classes, it offers a mix of growth, stability, and income while effectively managing risks. For Indian investors seeking diversification and long-term wealth creation, multi-asset allocation funds have gained prominence as a flexible and strategic solution.
Multi-asset investing involves spreading investments across multiple asset classes, such as equities, debt, gold, silver, REITs, and InvITs. This strategy leverages the unique strengths of each asset class:
Equities drive long-term capital appreciation. Debt instruments offer stability and accrual returns. Gold and silver act as hedges against inflation. REITs and InvITs provide steady income and diversification through real estate exposure.
This strategic allocation minimises downside risks and ensures balanced returns, making it particularly valuable in volatile market conditions.
Multi-asset allocation funds are regulated by SEBI (Securities and Exchange Board of India). They are required to allocate a minimum of 10% across at least three asset classes, ensuring a diversified and balanced investment portfolio. These funds encompass a broad range of investments, including equities, debt, commodities, overseas securities, REITs, and InvITs.
Diversification: These funds offer exposure to multiple asset classes, ensuring the portfolio remains balanced and resilient across varying market conditions, reducing overall risk.
Volatility Mitigation: By spreading investments, these funds reduce portfolio volatility and deliver more consistent returns.
Expert Portfolio Management: Skilled fund managers dynamically adjust allocations to optimise returns, relieving investors of the burden of rebalancing.
Tax Efficiency: Many multi-asset funds are taxed like equity funds, offering favourable tax benefits based on the holding period.
Flexibility: These funds allow easy entry and exit with minimal restrictions, ensuring liquidity and convenience.
The core principle of multi-asset allocation funds is balancing risk and return:
Equities serve as the portfolio’s growth engine, with historical data showing 43% CAGR during bull phases and 15% CAGR over longer periods. However, equities can experience low-growth consolidation phases, necessitating diversification.
Debt instruments complement equities by offering stability and predictability, acting as a buffer during volatile markets. For instance, between 2007 and 2023, debt consistently delivered steady returns, helping control portfolio risk.
Gold and silver protect against inflation, safeguarding purchasing power.
REITs and InvITs diversify portfolios with steady income streams from real estate investments.
Together, these assets create a balanced portfolio tailored to investors’ financial goals.
In addition to traditional asset classes, strategies like covered call options enhance yield potential. Particularly useful in volatile or range-bound markets, this approach involves selling call options on equity holdings to generate premium income. This helps investors address challenges such as fluctuating interest rates, geopolitical uncertainties, and volatile foreign portfolio investments.
Multi-asset allocation funds provide a balanced and diversified investment approach, helping investors achieve growth, stability, and income while managing risks effectively. Their flexibility and strategic diversification make them a valuable tool for building portfolios and ensuring long-term wealth creation.
Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature