Mutual Funds: Check out multi-asset allocation funds 

Multi asset allocation funds invest in equity, debt and gold which help cushion the risks associated with investing in just one asset class

At a time when net outflows from equity mutual funds were Rs 4,000 crore in August, the highest since September 2010, investors were turning towards multi-asset allocation funds to tide over the market volatility. In the same month, net inflows in multi-asset allocation funds were Rs 831 crore as compared to Rs 82 crore of net outflows in July this year.

Multi-asset allocation funds invest in equity, debt and gold which help investors to diversify the portfolio and cushion the risks that are associated with investing in just one asset class. As every asset class has its own risk-return profile, these funds reduce the overall risk exposure of the investment portfolio. The fund manager rebalances the portfolio depending on the market movements and books profits regularly from the asset which is performing well and reduces exposure to the underperforming assets. If an individual investor has to rebalance his portfolio, he will have to pay brokerage and taxes. However, a multi-asset fund does not incur such costs.

Omkeshwar Singh, head-RankMF, Samco Group, says outflows from equity funds were due to fatigue as those who had invested in the last three years saw their portfolio down by 30-50% in the Covid-19 market fall and as soon as the markets rallied they exited in July and August with their principle amount or in acceptable negative returns. “During volatile markets and uncertainty, safety places a major role in investment decisions. Selection of great schemes is most important, as very few have a great quality portfolio to sail volatility and uncertainty to provide reasonable risk-adjusted returns,” he says.

Harshad Chetanwala, co-founder, MyWealthGrowth, says the outflows in equity funds are because investors are booking profits as the stock market has surged sharply during the last few months. “The same trend can be seen in equity-oriented hybrid funds. The net inflows in multi-asset allocation funds in August were because of the two new fund offers,” he says.

Asset allocation for investors

Multi-asset allocation funds are ideal for conservative investors who do not want to risk investing in one particular asset which is volatile and look for steady returns on their investments. These funds are ideal for those who have long-term goals but have low risk appetite.

Brijesh Damodaran, managing partner, BellWether Advisors LLP, says having exposure to equity, debt and gold in one scheme is ideal for investors to explore. “In times such as these, it is recommended to have an asset allocation strategy and investors are slowly aligning towards this approach. More communication and information sharing can help the investor to get into this,” he says.

Chetanwala says multi-asset allocation funds are dynamically managed based on economy and growth potential across different asset classes, but it has a common portfolio for all investors. “It cannot be put forward as a standard solution for all.

Investors with moderate risk appetite who wish to generate marginally higher returns than debt funds or fixed deposits may prefer to look at multi-asset allocation funds with additional risk as there will always be some allocation in equities. Multi-asset allocation funds should be seen as hybrid funds that invest in gold and international stocks (some funds) along with equities and debt,” he suggests.