SEBI, also known as the Securities and Exchange Board of India, defines a multi-asset allocation fund as a fund that is made up of at least three asset classes with a minimum allocation of at least 10% each across all three asset classes. invests in. As an investor, investing in these mutual fund schemes can get exposure in equity, debt as well as commodity classes like gold.
Why did asset allocation come into the limelight?
There are many mutual fund investment aspirant who are not well versed with the markets as a fund manager. Lack of innovation or financial knowledge makes it quite difficult to enter and exit the markets. This also applies to mutual fund schemes. It will be difficult for many novice investors to decide whether they want to invest in equity mutual funds or debt mutual funds. One reason for this could be a lack of assessment of the investor’s financial goals, risk appetite and time frame.
Another layer of complexity is added to mutual fund investment decisions when many investors attempt to invest in a tax efficient manner. To help investors make prudent investment decisions, mutual fund companies may have introduced the hybrid mutual fund category. This is where asset allocation came into limelight with mutual fund schemes that invested across asset classes. Asset allocation can be seen as a practical decision especially during the pandemic. For example, when the equity class experienced a decline and the debt class was volatile, the gold asset class was seen as an advantage in terms of growth. This prompted many to maintain diversification in their portfolio.
Understanding Asset Allocation
As you may already know, the term ‘asset allocation’ refers to an investment strategy that invests in different asset classes based on the risk appetite and goals of the investors. Adding a mutual fund scheme like multi-asset allocation fund to your portfolio can help in asset allocation, thereby reducing overall risk over the long term through diversification.
If you have noticed the way the financial markets work
instability
(ie, cyclical up and down trend), you may be able to recognize that different asset classes perform differently at different intervals of time and through different phases of a country’s economy. In such a scenario, a multi-asset allocation fund can be considered as a good solution for all the asset allocation needs that an investor may have.
Many mutual fund companies offer multi-asset allocation fund schemes to their investors. The main objective of these schemes is to try and work out a balance between risk and reward in an investor’s portfolio. For example, if the equity asset class is facing a downward trend, the portion of the portfolio that invests in the debt asset class can act as capital protection. In addition, multi-asset funds also invest in market capitalization. This may allow the investor to get exposure to companies that fall under small, medium and large market caps.
While first-time and novice investors may often be advised to invest in multi-asset fund schemes, it is prudent to consider the following points before proceeding:
- The investment strategy of multi-asset funds should suit you risk profile or risk appetite. Unless this is the case, investing cannot help you achieve your financial goals.
- Since these schemes are managed by a team of financial experts and fund managers who keep an eye on the economy as well as the asset classes, you may decide to invest in such schemes even if you are familiar with the workings of the financial markets. Don’t be well versed in how to do it.
Apart from the above, it can help to identify one’s risk appetite with respect to financial goals and time frame before investing.
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.