Mutual funds are the go-to option when it comes to investments for millions of investors. However, when we talk about mutual funds, there is an ocean of opportunities that can be tapped by investing in the type of fund that meets all the requirements of the investors and helps in maximizing their wealth. For this, investors need to know their investment profile and their risk perception to make a better investment decision. But what about the investors who want to invest in all types of funds or do not have a clear idea about the target investment category. For such investors, hybrid funds are an ideal choice. Multi-asset allocation funds are a good option in the hybrid mutual funds category.
Given below is the meaning of multi-asset allocation funds and ga few details regarding the same.
Multi-asset allocation funds belong to the hybrid funds category. These funds invest in more than one category of funds like equity and debt. As per the guidelines of SEBI, multi-asset allocation funds invest in at least 3 types of assets by investing a minimum of 10% in each of them. The types of assets in the multi-asset allocation funds include equity and equity-related instruments, debt and debt-related instruments, gold, real estate, money market instruments, etc. Some funds also invest in international equities if it is mentioned in the Scheme Information Document. Investors, therefore, get access to a diversified portfolio that allows them to tap returns from various sources as well as spread the overall risk of investment.
Like any other mutual fund, multi-asset allocation funds are a good investment option for different types of investors. These funds are quite diversified in nature and therefore have a very reduced risk factor. Mutli-asset allocation funds, therefore, are ideal for investors that have a low-risk appetite. Also, these funds need an investment horizon of at least 3 years to generate better returns for the investors. Hence, investors having similar investment horizons can invest in these funds. Moreover, these funds provide a more or less stable source of income to the investors as compared to equity funds as the investment in equities is lower which reduces the volatility of the funds.
Some of the key features of multi-asset allocation funds that make them an excellent addition to their portfolio are mentioned below.
The ideal investment horizon for multi-asset allocation funds is usually between 3 years to 5 years. The medium to long-term investment horizon lowers the risk along with giving the fund a better chance to perform in the face of volatile markets.
Mutual funds have the inherent benefit of diversification. However, multi-asset allocation funds have an enhanced benefit of diversification as it is not only within the same asset class but across different asset classes. Therefore, when one asset class is underperforming or does not have enough momentum, the other assets can help balance the portfolio and provide better returns for the overall portfolio.
The risks of investing in multi-asset allocation funds are quite low as compared to other mutual funds. The risk is spread across many assets classes which helps to reduce the overall risk of the fund as a whole. These funds are considered low-risk funds especially when compared to pure equity funds or equity-oriented funds.
Multi-asset allocation funds have the potential to provide relatively stable returns as the debt component and other assets of the fund are relatively less volatile when subject to market fluctuations. This makes them ideal for investors who seek to invest in funds to earn a stable source of income (for example, retirees, risk-averse investors, etc).
The cost of investing in assets like gold and top-performing equities individually can be quite high if an investor wants to build a substantial portfolio to earn good returns. However, by investing in multi-asset allocation funds, investors can get access to different asset classes at a lower investment cost. The expense ratio of these funds is also relatively lower thereby adding to the ultimate returns of the investors.
The expertise of the fund managers and their knowledge and experience to analyse the markets is often the tipping point between good quality mutual funds and relying on their own investing pattern for the investors. By investing in multi-asset allocation funds, investors can access this expertise and can improve the quality of their portfolios.
Multi-asset allocation funds are a combination of many assets and therefore, understanding their taxation can be quite tricky. To remove any ambiguity in this matter, SEBI has directed that the taxation of multi-asset allocation funds will be in line with other hybrid funds, i.e., it will depend on the dominant asset class whether it is equity or debt. If a multi-asset allocation fund is more equity-oriented, it will be taxed in line with equity funds, and if the dominant class is debt, they will be taxed as per debt mutual funds.
The taxation of multi-0asset allocation funds is tabled below.
| Type of funds | Short term gains | Tax rate | Long term gains | Tax rate |
| Equity-oriented multi-asset allocation funds | Less than 12 months | 15% (plus cess and surcharge) | 12 months and more | Exempt up to Rs.1,00,000Above Rs.1,00,000 taxed at 10% (plus cess and surcharge) |
| Debt oriented multi-asset allocation funds | Less than 36 months | Slab rate of investor | 36 months and more | 20% (plus cess and surcharge) with indexation |
The investors also receive dividends from these funds for their equity component of the fund. These dividends will be taxed in the hands of the investors at the applicable slab rates after considering the gross total income of the investor.
Multi-asset allocation funds are hybrid funds and a better investment option for investors who are looking to invest in different asset classes at reduced investment costs. These funds help the investors in earning stable returns at manageable risks ultimately meeting the goal of maximizing the investors’ wealth. However, before investing in these funds, investors have to access a few basic parameters like the fund history and past performance, the fund manager’s qualifications and skills, their own investment horizon and risk-return profile, etc. These parameters will help them in making a sound investment decision without being influenced by other investor’s portfolios or being part of the herd mentality.
For a fund to be classified as a multi-asset allocation fund, it needs to invest in a minimum of 3 different types of assets to the tune of at least 10% in each of such asset classes.
Currently, the top-performing multi-asset allocation funds are,
-Quant Multi Asset Fund growth
-Axis Triple Advanatge fund
-Navi 3 in 1 Fund Growth
-Sundaram Multi Asset-Direct Plan-Growth
-Union Asset Allocation Fund Growth\
Yes. Multi-asset allocation funds are open-ended funds making the entry and exit from the fund quite easy without any additional charges. However, Some funds charge exit load as per their SID, the investors need to be aware of such charges prior to investing in the fund.
The types of gains from redeeming the investment in multi-asset allocation funds can be short-term gains or long-term gains depending on the holding period of investment in the fund.
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