Although finding the right equilibrium in a portfolio has been a perennial challenge, diversified multi-asset funds offer hope in a volatile market
The famous proverb — “Don’t put all your eggs in one basket,” applies befittingly to investments. It essentially means that concentration of your efforts (money) only in one area may be too risky at times. Diversification is the key and is one of the basic concept which investors should stick to during the course of investments, irrespective of market conditions.
In other words, it is not wise to invest all your money in just one asset class. It could be hazardous as every asset class has its own cycle of performance. Therefore, investors should allocate their funds in varying proportions across different asset classes like equity, debt, gold and the likes. Thus, asset allocation strategy is a paramount investment mantra to strike a balance between risks and growth while fulfilling long-term financial goals. If followed with discipline, multi-asset investing may not only yield stable returns but also keep the undue investment related stress at bay.
Making it easier for investors to achieve this objective is the multi-asset mutual fund. A multi-asset scheme aids the investor to take exposure to three or more asset classes in one-go, thus emerging as a suitable solution to meet asset allocation needs. Though the concept of asset allocation, prima facie, appears quite an easy task to do, often investors fail to follow this basic strategy and fall short of their financial goals. The biggest challenge which prevents investors from sticking to asset allocation is their own financial behaviour and inability to control emotions while taking impulsive actions which tends to be detrimental in nature. Multi-asset scheme helps circumvent all these challenges and automatically takes care of the asset allocation strategy.
Further, in a multi-asset scheme, the allocation in assets like equity, debt, gold and other asset classes is clearly defined and adhered to. For instance, equity tends to be volatile while debt tends to deliver predictable returns and renders downside protection. On the other hand, the yellow metal – gold – acts as a hedge against inflation. Each of these asset classes tends to perform well in varying phases of an economic cycle. Similarly, the risks associated with each of these asset classes too vary.
By investing in a multi-asset fund, an investor can be rest assured that the potential risk is spread across assets. Also, given that the fund manager will be allocating assets, the investment will be insulated from the greed or fear emotions that an investor may experience from time to time. Often it is seen that investors tend to go overboard on one asset class when valuations are uncomfortably high. Such an action can be potentially very dangerous. By staying invested in a multi-asset fund across market cycles, historical data shows that investors who have been disciplined with their investments have always emerged wealthier.
Consider long-term SIP in multi-asset scheme
The best way to take advantage of multi-asset schemes is by investing through systematic investment plan (SIP). Longer the tenure of SIP, better the returns. Since all asset classes have different investment cycles, a longer tenure ensures investors get the benefit of rupee cost averaging across the asset classes.
A systematic monthly investment in a multi-asset scheme lets you accumulate units at various prices across the investment cycles. Moreover, majority of the investors neither have time to track various asset classes nor the understanding of how valuation works. Through SIP, every unit of fund purchased has the collective value of different assets at one place. Therefore, an investor stands to benefit from the investment cycles of various assets as it adds value to the investment.
Investment through SIP ensures an investor has a flexible, growth-oriented and disciplined investment approach which is long-lasting. Since one can invest small amounts on a regular basis, it is a convenient way to accumulate assets in a steady manner over a longer horizon.
Since multi-asset funds ensure that a diversified portfolio is maintained at all times, an investor need not worry about concentration risk in a portfolio. Also, an investor need not track various asset classes to rebalance the portfolio periodically, because in a multi-asset fund, such actions will be taken care by the fund manager. This eventually aids in navigating different market conditions with relative ease while fulfilling long-term financial goals.
The views are personal and are not part of the Outlook Money editorial Feature