Multi-Asset Fund Investment: A Guide To Getting Started

Multi-asset funds are a type of investment strategy that combines different types of assets to create a diverse portfolio. They typically invest in a minimum of three asset classes, including equities, fixed income, debt, real estate, gold, infrastructure, and cash. These funds are managed by experts who adjust the balance of asset allocations to protect your capital and take advantage of positive conditions for growth. This makes multi-asset funds a good choice for investors seeking capital growth, capital preservation, and income with a medium to high-risk profile. They are also suitable for those with a low-risk appetite who want to enjoy steady returns. Some key benefits of multi-asset funds include diversification, flexibility, and the ability to secure steady income. However, it's important to carefully analyse funds and strategies to determine the best approach for your investment goals.

Multi-asset funds for capital growth, preservation, and income

Multi-asset funds are a combination of asset classes such as cash, equity, or bonds used as an investment. They are designed to deliver growth, income, and capital preservation.

How Multi-Asset Funds Work

Multi-asset funds increase the diversification of an overall portfolio by distributing investments across several classes. This reduces risk (volatility) compared to holding one class of assets, but may also hinder potential returns. For example, a multi-asset investor might hold bonds, stocks, cash, and real property, whereas a single-class investor might only hold stocks.

Risk Tolerance Funds

Mutual fund companies offer asset allocation funds that are designed to perform according to an investor's tolerance for risk. The funds can range from aggressive to conservative. An aggressive-style fund would have a much higher allocation to equities, with perhaps as much as 100%.

Capital Preservation Funds

Capital preservation funds aim to preserve your capital, even during economic downturns. These funds tend to have the majority of their exposure to investment-grade bonds.

Multi-asset funds can be a good choice for investors seeking capital growth, capital preservation, and income. They are likely to be appropriate for investors with a medium to high-risk profile. These funds are typically actively managed, with a portfolio manager and team of investors using analysis, insights, technology, and tools to make informed investment decisions.

Some multi-asset funds to consider include:

• The Fidelity Asset Manager 85% fund ("FAMRX")
• The BlackRock Allocation Target Shares Series S Portfolio ("BRASX")
• The Great-West Short Duration Bond ("MXSDX")
• The Prudential Short-Term Corporate Bond ("PBSMX")

Multi-asset funds for investors with a medium to high-risk profile

Multi-asset funds are a strong choice for investors with a medium to high-risk profile who are seeking consistent returns throughout market and economic cycles. These funds are designed to provide stability and diversification by investing in a variety of asset classes, such as stocks, bonds, real estate, credit, or cash. By spreading investments across multiple asset classes, multi-asset funds can reduce the overall risk of an investment portfolio.

When considering a multi-asset fund, it is important to understand your investment goals and risk tolerance. These funds can be actively managed, with experts making decisions based on market dynamics to maximise returns and limit risk. The allocation of assets within a multi-asset fund will vary depending on the fund's strategy and the investor's risk profile. For example, an aggressive-style fund for investors with a high-risk profile would have a much higher allocation to equities, while a conservative fund for investors with a medium-risk profile would have a greater concentration in fixed income and short-term money market funds.

In India, there are several multi-asset funds that have delivered strong returns, such as the Motilal Oswal Multi Asset Fund, Kotak Multi Asset Allocation Fund, and ICICI Prudential Multi Asset Fund. These funds have an average return of around 17-20% per annum over the last 5 years. When investing in multi-asset funds, it is recommended to have an investment horizon of at least 3-5 years to allow for optimal growth and diversification.

To invest in multi-asset funds, you can follow these steps:

• Register with a mutual fund platform or app.
• Choose the specific multi-asset fund that aligns with your investment goals and risk profile.
• Decide on the amount and mode of investment, such as a lump sum or Systematic Investment Plan (SIP).
• Provide your Know Your Customer (KYC) details, including your Pan number and bank details.
• Complete your investment and monitor its performance over time.

Multi-asset funds for long-term capital appreciation

Multi-asset funds are a great option for investors seeking long-term capital appreciation. These funds offer a well-diversified portfolio by investing in multiple asset classes such as equity, debt, gold, real estate, commodities, and global stocks and bonds. This diversification helps to balance the risk-return profile and provides stable growth across varying market cycles.

Diversification:

By investing in different asset classes, multi-asset funds help investors lower their risks and expose their portfolios to a variety of assets with different risk-reward factors. This ensures that even when some asset classes underperform, investors can still enjoy a steady income.

Expert-led Rebalancing:

Multi-asset funds offer automatic portfolio rebalancing, which is managed by experienced fund managers. They adjust the allocation between asset classes based on market conditions, ensuring that investments are well-distributed across assets generating higher returns.

Well-Balanced Portfolio:

With multi-asset funds, investors get the benefits of different asset classes in a single fund. This provides a well-balanced and diversified portfolio, which is especially advantageous for new-age investors who are unsure about the optimum asset mix.

Long-Term Performance:

The diversification offered by multi-asset funds is well-suited for long-term investors. These funds typically have a minimum investment horizon of 3 to 5 years, and their performance tends to improve over time, making them a good option for those seeking long-term capital appreciation.

Tax Benefits:

The taxation of multi-asset funds depends on the fund's asset allocation and holding tenure. If the fund invests more than 65% in equities and is held for over a year, it is taxed as an equity fund, with long-term capital gains taxed at 10%. For funds held for more than 3 years with a lower equity allocation, long-term capital gains are taxed at 20% with indexation.

When considering multi-asset funds for long-term capital appreciation, it is important to remember that these funds may lag pure equity funds in bull markets due to their conservative nature. Additionally, investors should research and compare different funds based on their investment strategies, historical performance, and expense ratios to find the best fit for their financial goals and risk tolerance.

Multi-asset funds for investors seeking a steady income

Multi-asset funds are a great option for investors seeking a steady income. These funds invest in a variety of asset classes such as stocks, bonds, real estate, credit, cash, and more. By diversifying across multiple asset classes, multi-asset funds reduce the risk of volatility and provide a more consistent stream of returns. This makes them a good choice for investors seeking capital preservation and a steady income.

One of the key advantages of multi-asset funds is their flexibility. Fund managers can make big-picture decisions and balance asset classes to achieve specific investment goals. They can invest more assets overseas, shift from equities to bonds, reduce risk, or explore non-traditional asset classes. This adaptability allows multi-asset funds to drive better investment outcomes and secure a steady income for investors.

Multi-asset funds are also suitable for investors with a low-risk appetite who want steady returns. By investing in multiple asset classes, these funds even out the risk associated with investing in just one type of asset. This ensures a steady flow of income even when some asset classes underperform. Additionally, multi-asset funds offer a ready-made, well-balanced portfolio for investors who may not have the resources to create a tailor-made investment portfolio.

When considering a multi-asset fund, it's important to remember that they are typically designed for investors with a medium to high-risk profile and a long-term investment horizon. These funds may not be suitable for those seeking a capital guarantee or those with a short investment timeframe. It's also crucial to carefully analyse the fund's strategy and ensure it aligns with your investment goals. Consulting a financial professional can help you choose the right multi-asset strategy for your needs.

Multi-asset funds for investors with a low-risk appetite

Multi-asset funds are a great investment option for those with a low-risk appetite. These funds invest in multiple asset classes, typically including equity, debt, and one additional asset class like gold or real estate. This diversification reduces risk and provides steadier returns compared to investing in a single asset class. Here are some key advantages and considerations for investors with a low-risk appetite:

Advantages:

• Reduced Risk: Multi-asset funds spread investments across multiple asset classes, lowering the risk associated with investing in just one type of asset.
• Steady Returns: These funds provide a steady flow of income, even when some asset classes underperform, as the portfolio is well-diversified.
• Automatic Portfolio Rebalancing: Many multi-asset funds offer automatic portfolio rebalancing, which is crucial for ensuring that investments are distributed across the best-performing asset classes. This helps investors navigate volatile market conditions.
• Ready-made Portfolio: Multi-asset funds offer a well-balanced investment portfolio without the need for investors to create their own, often costly, tailor-made portfolios.
• Unrestrained Entry and Exit: These funds typically do not charge entry or exit fees, providing investors with greater flexibility.

Considerations:

• Long-term Investment: Multi-asset funds are generally suitable for long-term investments, ideally with a horizon of at least three years.
• Taxation: In some jurisdictions, such as India, holding multi-asset funds for less than three years may result in short-term capital gain tax liability. Holding for longer may incur long-term capital gains tax.
• Performance Variability: While multi-asset funds offer steadier returns, they may lag behind rising markets due to lower stock allocations.

Examples of Multi-Asset Funds:

• Quant Multi Asset Fund
• ICICI Prudential Multi Asset Fund
• SBI Multi Asset Allocation Fund
• Bandhan Multi Asset Allocation Fund
• Tata Multi Asset Opportunities Fund
• Kotak Multi Asset Allocation Fund
• DSP Multi Asset Allocation Fund
• Mirae Asset Multi Asset Allocation Fund
• Nippon India Multi Asset Fund

How to Invest:

Investing in multi-asset funds can be done through online platforms or apps that offer mutual fund investments. Here's a general step-by-step guide:

• Register with the platform and provide necessary details, such as your name, contact information, and investment goals.
• Browse the platform's selection of multi-asset funds and choose the one that aligns with your investment objectives and risk tolerance.
• Decide on the amount you wish to invest and choose between a lump sum investment or a Systematic Investment Plan (SIP), which involves investing smaller amounts at regular intervals.
• Provide your Know Your Customer (KYC) details, such as your Pan number and bank details, to complete the investment process.

Remember, it's always a good idea to consult a financial professional before making investment decisions to ensure that the chosen strategy aligns with your specific goals and risk profile.

Frequently asked questions