Asset allocation is critical in wealth creation. Every asset class behaves differently and provides varying returns across changing economic cycles. With the asset class winners changing, distribution becomes a dynamic process.

Multi-asset mutual funds have long been a favourite for Indian investors. These funds primarily take exposure in the three asset classes — equity, debt and gold – to address the asset allocation needs of an investor. Equity, for example, aims to provide capital appreciation, while debt seeks to provide stability to the portfolio, and gold plays the potential safe haven, providing a hedge against inflation and currency depreciation.

With the rapidly evolving financial scenario, mutual funds, too are undergoing major changes. The cryptocurrency segment has started launching MF-like investment instruments. Some companies have introduced systematic investment plans that take exposure to cryptos like Bitcoin and Ethereum through monthly investments.

Cryptocurrencies have been treading the path between legality and acceptability. However, it is amply clear that these could very well turn out to be standard mutual fund investments avenues. While experts may not be able to predict a timeline for cryptocurrency entering the mainstay of investment, investors would want to protect their downside with asset allocation and diversification, increasing the necessity of including assets that may offer better returns.

“Millennials would be the driving force behind the rapidly evolving mutual fund industry. They are tech-savvy and prefer to invest via technology,” says Abhinav Angirish, Founder of InvestOnline.

With fractional investments in commercial realty becoming a reality, MF companies are expected to include real estate and other assets into their multi-asset funds to offer better performance to investors.

Another key trend likely to emerge would be exposure to international stocks through MFs. This trend will gain traction over the next few years and, experts believe, the basket of foreign investment could be filled with categorised or focused foreign equity investment schemes. Not strictly a mutual fund, but funds that invest up to a certain percentage of assets in foreign stocks, with the rest in domestic equities, are already available.

Environmental, social, and governance (ESG) investing aims to divert focus to companies that meet certain ESG norms. Many Indian asset management companies (AMCs) are modifying existing funds or launching products to keep ESG sentiments sweeping across the market.

The Covid-19 pandemic has stressed on the importance of liquidity, and retail investors are now looking for more liquid options, instead of long-term, locked-in assets. Accordingly, time preference for short-duration mutual funds are expected to rise. And, depending on the requirement, one may be able to opt for funds to meet specific life requirements.

“There is immense scope for solution-oriented funds, for example, for retirees from a considerable part of the Indian population, a solution-oriented fund post-retirement that combines savings and insurance can be a big driver in channelling the savings,” says Angirish. “On the lines of gold funds, there is a scope for funds that track individual commodities, including agriculture.”

There could be a new perspective fund that invests in nascent technologies that can drastically change the future of mankind. Such funds would provide a fillip to research and development that could propel the country to introduce new technologies. The possibilities
are endless.

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Assets for MF Companies Rs 33.67 Lakh Cr from Rs 6.73 Lakh Cr Growth Rate 5 times in 10 years Rs 33.67 Lakh Cr from Rs 13.81 Lakh Cr

Growth Rate More than 2 times in 5 years

• AuMs crossed Rs 30 Lakh Cr in November 2020
• MFs Crossed 10 crore folio milestone in May 2021
• Number of retail folios have crossed 85 million