Last Updated on September 13, 2020 by Gopal Gidwani

Are multi asset funds a good investment?
If this is what you have been thinking, you should take a closer look at what the experts feel. Diversification is a major virtue when it comes to investing, something that investors must follow by all means. This is because diverse asset classes may respond differently to various macroeconomic and market movements. Experts suggest that there is no sole asset class that has performed consistently and outperformed the market on its own historically. Based on performance historically, the best performing class of assets has actually been gold over the last 4-5 years or so. However, it has still given negative returns in the last 3 years as per reports.

In a similar vein, equities have been consistently outstripping the performance of several other classes of assets over the last 3 years or so. It has managed to provide positive returns over a period of 5 years till now. The debt was a stellar performer earlier for a couple of years it bypassed negative returns for the remainder of the duration under assessment. The best strategy for investments will be to remain invested throughout varying asset classes. This will enable proper diversification and further market return participation as and when there is a scenario where the asset classes in question outperform the market. Some of the asset class options include debt, domestic equities, international equities and commodities among others.

Some basics of how to allocate assets in a portfolio
You may consider investing in a mutual fund like SBI multi asset allocation fund or likewise. In a prevailing environment like the one that has remained the same over the last decade, asset classes like gold, international equities and debt may outstrip domestic equities in terms of performance. This will help in balancing out returns. In a risky environment as seen between the years 2002 and 2008, commodities and domestic equities may generate good returns for the investment portfolio. Diversification is vital for the portfolio of any investor in order to safeguard the same from market risks.

Rebalancing the portfolio in a disciplined manner is vital for making sure that asset allocation is optimally done throughout the investment journey. This will indicate profits being booked from asset classes that have done well along with allocating to other assets which have underperformed in comparison. Minus any rebalancing, the investment portfolio will keep getting tilted towards a few specific asset classes. Investors who are trying to rebalance the portfolio themselves will find it practically tough on this count. Personal preferences may enter the picture at times. For example, suppose you made an investment in an asset class such as gold and saw the returns increase by approximately 25%. The investors, however, may not redeem investments with a bid towards garnering higher returns. However, they may regret corrections in gold prices sometime later. The other aspect is related to taxation. Every time the investments are rebalanced throughout various asset classes, the investor may have liability for paying income taxes based on the rates which are applicable.

Benefits of multi asset investing - Key aspects
The best multi asset mutual funds can be hugely beneficial since they offer diversification benefits throughout multiple asset classes within one particular investment based product. Professional managers of funds will be making investments in a disciplined manner throughout asset classes, not just at the time of making an investment but also on the ongoing basis through portfolio rebalancing. Rebalancing within the portfolio does not draw any extra tax-related compliances for investors. Investing in a renowned mutual fund scheme like HDFC multi asset fund can be considered, since deploying your money is better for multiple assets rather than taking one ultimate asset class.

Multi-asset funds have lower volatility levels owing to the diversified nature of the portfolio, experts reckon that this does not always equate to lower returns in the market. Over the last decade and a half, the funds have generated returns that are comparable to those earned by stocks as well. Over 5 and 10 year durations, returns have hovered somewhere around 9-12%. Exact allocations may not always be tailored to specific personal goals and in such scenarios, you can build your own strategy likewise. However, taking the fund based avenue is always recommended since shuffling is done within the same for assets. Investors will not have to worry about timing their exits and entries and also tax-related aspects. Fund managers may also have better knowledge and experience to tackle market conditions and take decisions.

These will be decisions pertaining to the overweight/underweight factor for specific assets, the duration for holding every asset in the portfolio and the stock type to be purchased. Multi asset funds do not have a considerable history but they have generated 10% in returns over the last year on an average. This is superior to 8% that has been ensured by debt-based hybrid funds. Expense ratio stands at 1.5-2% for multi-asset funds as per experts. There may be added costs that you should look into carefully.

Summing up the benefits
The benefits of investing in multi asset funds can thus be summed up below:

• Diversification throughout fixed income, equity and gold for lowering risks.
• Stable returns in comparison to standalone gold or equity investments.
• Automatic rebalancing of asset allocation based on the performance of diverse assets.
• Exposure to multiple assets in the market via one single financial product. This eliminates the need to track several schemes and markets separately.
• Flexibility for withdrawing your money is another plus point.

You should thus consider investing in multi asset funds since they emphasize the principle of diversification that is suitable for spreading out risks and benefiting from the performance of multiple assets in the portfolio.