‘variety is the spice of life’, But, did you know that diversity is also important as a concept in personal finance and investment decisions? It finds its implication in the ‘word’
Diversity
‘, which is cited by many financial experts and fund managers as an essential requirement in a prudent mutual fund portfolio.
Often, you may find it difficult to achieve diversification alone as it involves a lot of time, research, studying the markets, closely monitoring stocks through various trends, etc. And sometimes, you may not have enough financial skills or time to understand how different asset classes function to make sound investment decisions. This is where multi-asset allocation funds can prove beneficial. Multi-Asset Allocation Funds can provide you the opportunity to get through market volatility while conserving capital and experiencing consistent returns.
Here are five tips that can help you diversify your mutual fund portfolio with the help of multi-asset allocation funds:
1.
Choose this type of plan to add diversification to your portfolio
Multi-asset funds primarily invest in at least three asset classes. Some asset classes include; Equity, debt, gold, real estate, securities with fixed income strategies, and so on. Hence, investing in multiple asset allocation schemes helps in increasing the diversification of your investment portfolio. Each of these asset classes has different investment objectives and can function differently in macroeconomic and microeconomic scenarios. This can provide an advantage to your portfolio, because when one asset class is facing a downside, other asset classes can act as a capital protection. This way, by choosing to invest in one scheme, your mutual fund portfolio can take advantage of different asset classes.
2.
Leverage the Expertise of a Financial Advisor
You want to make prudent financial decisions when it comes to investing. However, what if you don’t have the time or resources to do so? In such a case, adding a multi asset allocation mutual fund to your portfolio can help as it comes with the expertise of a fund manager, backed by a research team. These finance experts can help in cleverly allocating investments across different asset classes to suit the economic situation. This tip comes in handy when novice investors want to look for a mutual fund scheme that acts like an all-weather fund and helps in diversifying their financial portfolio.
3.
Opt for this fund to invest in a structured manner
SEBI or the Securities and Exchange Board of India has directed all multi-asset allocation funds to invest in a minimum of three primary asset classes. The most common asset classes are equity, debt and gold. Additionally, a multi-asset allocation fund is directed to invest a minimum of 10% proportionately in each asset class. This provides an assurance that, whatever the market scenario, each type of asset class is represented in your portfolio. It highlights the kind of disciplined framework that investing in multi-asset funds can provide to your portfolio. It can help investors look closely at plan information documents to understand the mandate and investment objectives.
4.
Build your portfolio with the objective of long-term wealth creation
Multi-asset allocation schemes can be suitable for investors who have long-term goals and can stay invested for a period of 5 years or more. The equity segment component of the scheme can help investors to take advantage of the uptrend in the market, while the debt segment component can help in hedging the market downturn. The commodity asset class acts as a buffer as it can prove to be relatively stable across market cycles. Therefore, it may seem like a smart investment decision to maximize your portfolio by combining multi-asset allocation schemes.
5.
Strategic Asset Allocation to Build a Good Portfolio
At times, investors may feel that investing directly in a hybrid mutual fund scheme may serve the purpose of asset allocation. However, it is wise for investors to first understand their investment goals, their
risk appetite
And the time frame before choosing the plan that best suits your needs. While a multi-asset allocation fund can be an addition to your portfolio for asset allocation, it is equally important to note that these schemes alone cannot be considered a well-diversified portfolio and need to be combined with other schemes. This can strengthen the portfolio. A smart investor like you can benefit from monitoring your mutual fund portfolio from time to time to ensure sound financial decisions.
Disclaimer
An investor education initiative.
meeting www.icicipruamc.com/note To know more about the process of fulfilling the Know Your Customer (KYC) requirement for investing in mutual funds. Investors should deal only with registered mutual funds, details of which can be verified on SEBI website http://www.sebi.gov.in/intermediaries.html For any queries, grievances and grievance redressal, investors may contact the AMC and/or Investor Relations Officers. In addition, investors can also file complaints on https://scores.gov.in If they are dissatisfied with the proposals made by the AMC. The SCORES portal allows you to register your complaint with SEBI online and view its status later.
Mutual fund investments are subject to market risks, read all the documents related to the scheme carefully.