Reason to choose multi-asset allocation fund for long-term investors

According to conventional investment wisdom, equity is considered better suited to long term investments while fixed-income instruments are preferred for short durations. This is because stock market investments are prone to fluctuations in the short term but tend to be stable over time, with a potential for good returns. Debt instruments – such as bonds and money market instruments – on the other hand, are considered more stable in the short run, but with lower return potential.

With multi-asset allocation funds, investors can leverage the advantages of both these and other investment avenues to build wealth over time while potentially mitigating risk. This can make them a good option for those looking to invest over a long horizon. To know more, read this multi asset allocation fund guide for long term investment.

• Table of contents

1. What are multi-asset allocation funds
2. Who should invest in multi-asset allocation mutual funds
3. Advantages of multi-asset allocation funds
4. Risk involved in multi-asset allocation funds
5. Key features of multi-asset allocation funds for long term growth

What are multi-asset allocation funds

Multi-asset allocation funds are suitable for:

• Investors looking for stability in their investments.
• Investors prefer professional management of asset allocation.
• Investors aiming for long-term growth potential.
• First-time equity investors seeking diversified investment options.

Who should invest in multi-asset allocation mutual funds?

A multi asset allocation fund invests in at least three asset classes, with a minimum allocation of 10% in each. These usually include debt and equity and commodities such as gold and silver.

The fund has a typical distribution range among these assets, within which fund managers can rebalance the portfolio in response to market conditions and their analysis. This multi asset allocation fund guide for long term investors tells you more about what could make these funds a good fit for extended investment horizons.

Advantages of multi-asset allocation funds

Multi-asset allocation funds offer several advantages:

• Reduced volatility: They exhibit lower fluctuations compared to pure equity funds, making them relatively more stable.
• Versatile investment choice: These funds serve as a reliable investment avenue across various market conditions.
• Expert asset allocation: Managed by professionals, they strategically distribute investments across different asset classes.
• Targeted returns: They aim to deliver reasonable returns, catering to investors seeking steady growth with managed risk.

Risk involved in multi-asset allocation funds

Investing in multi-asset allocation funds entails certain risks. These funds diversify investments across various asset classes such as equities, bonds, and commodities, aiming to balance risks and potential returns. However, risks include market volatility affecting different asset classes simultaneously, potentially impacting overall portfolio performance.

Additionally, changes in economic conditions, interest rates, or geopolitical events can influence asset values differently, affecting fund returns.

A proper understanding of these risks is crucial for informed investment decisions in multi-asset allocation funds.

Key features of multi-asset allocation funds for long term growth

• Portfolio diversification: Portfolio diversification is considered an important risk-mitigating tactic for financial market investments because it avoids dependency on one or a limited group of assets. Many mutual funds allow allocation of assets across equity and debt, but multi asset allocation funds include at least one more asset class, resulting in greater diversification.

• Asset class correlation: By investing in multiple asset classes, the fund can reap the benefits of whichever one is performing well at a given point of time. In the long run, this can help investors benefit from multiple market cycles. This is because different asset classes don’t usually move in tandem – one may go up while the other goes down. For instance, debt and stocks tend to move in opposite directions. During a slowdown, debt may perform better as investors seek stability, while equity may have higher return potential when the markets are good. And at times when both debt and equity are underperforming – such as during the Covid-19 Recession – an asset class such as gold could be more reliable.

• Flexibility in asset allocation: The minimum investment threshold for a multi asset allocation fund is 10% per asset class, which means a skilled fund manager has significant room to make strategic allocations depending on what is performing well in the market. The mutual fund portfolios can thereby leverage market fluctuations without investors having to independently time the market.

• Accommodating different risk levels: Conservative investors hesitate to invest in equity, while aggressive investors may not find much scope for returns in debt. Novice investors may not consider other asset classes.
  By combining asset classes in different proportions, multi asset allocation funds can cater to investors across a wide spectrum of risk appetites, especially in the long run. A conservative investor can be more open to including equity in their portfolio if their investment horizon is long. They can also opt for funds like multi asset funds that have a debt component along with an asset class like commodity.
  Someone who is comfortable with risk may still find enough high-risk options within multi-asset allocation funds with a high return potential, while also getting the advantage of debt and other instruments in certain market conditions.

Conclusion:

A multi asset allocation fund can aim to make the most of changing market conditions over a long horizon by investing in multiple asset classes and altering the exposure to each based on prevailing economic conditions. However, it is important to keep in mind some multi asset allocation fund tips for long term investment. Assess your risk appetite before choosing a fund. Also check the details of the fund manager, as their skill in managing and rebalancing your portfolio will be crucial to the fund’s performance. To visualize the potential growth of your investments over time, use an SIP mutual fund calculator. It is best to consult a financial advisor before making any investment decisions.

FAQs

What is the difference between multi asset allocation funds and other mutual fund schemes?

Multi asset allocation funds invest at least three asset classes, such as equity, debt and commodities. Traditional mutual funds schemes either invest primarily in one asset class – debt or equity – or could have a hybrid allocation between debt and equity.

How do multi asset allocation funds manage risk?

Such funds manage risk through diversification across at least three asset classes and by actively changing the asset allocation in the portfolio in response to market trends and fluctuations. The fund manager regularly reviews and rebalances the portfolio. The fund manager can increase the weightage of equity in the portfolio if the stock market is on the rise or can shift the focus to debt during volatile times. When both debt and equity are underperforming in the domestic market, other asset classes, such as gold, derivatives and the like.

How often should I review my multi asset allocation fund portfolio?

There is no universal rule on how often you should review your investment portfolio. Usually, it is recommended that you do so once every six months, but you can also choose a quarterly or annual review. Anything above or below that range may not be beneficial. Additionally, the fund manager for a multi asset allocation fund will undertake regular reviews of your portfolio.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.