If you are a retail investor considering investing in a multi-asset allocation fund, here are a few things that can help you make a prudent investment decision.
1.
A multi-asset mutual fund scheme may not always be highly diversified
SEBI or Securities and Exchange Board of India has defined a multi-asset mutual fund as such funds that invest in at least three asset classes with a minimum allocation of at least 10% each across all three asset classes. This indicates that while an investor can avail the facility of diversification, it may come with some compromise due to the 10% investment limit. This is why a detailed look through the information documents related to the scheme can help the investor to understand the specific risks of the asset classes. This will help investors determine whether that level of exposure is relevant to their risk tolerance.
2.
Multi-Asset Allocation Funds Are Not a Shortcut to Individual Portfolio Diversification
Many aspiring investors are often advised to diversify their investments if they want to strengthen their investment portfolio. However, it is important for investors to understand the difference between asset allocation done by a multi-asset allocation scheme and asset allocation for an individual portfolio. First, in the context of a multi-asset allocation fund, it involves a team of specialist fund managers who study market trends in order to make decisions regarding the strategic riskiness of asset classes. On the other hand, it can also be smart for an individual to choose mutual fund schemes independently. These schemes can invest in single asset classes that are not related to each other. This can allow investors to follow value-based or growth-based investing to suit their appetite for risk, financial goals and economic condition.
3.
It can help investors to know the taxation of Multi-Asset Mutual Funds
Since multi-asset mutual fund schemes do not come with a mandate to invest 65% of the fund in either equity class or debt class, taxation may vary from scheme to scheme. Additionally, different asset classes invested by a multi-asset fund scheme may be taxed differently. Therefore, a prudent investor should consider understanding the taxation of individual multi-asset funds with the help of detailed analysis of the Scheme Information Documents (SIDs) available on the website of the fund house.
4.
The role of a fund manager is crucial when it comes to multi-asset allocation funds
As we have already discussed above, asset allocation is involved in multi-asset mutual fund schemes. Here, the expert team of fund managers looks at the market trends as well as the functioning of the asset classes and then takes the investment decision. It is important to note that since this scheme does not follow any specific style of investment, the decision making is the responsibility of the team of financial experts. Therefore, it is prudent for investors to take another step in the matter of research and look closely at the documents related to the scheme. The plan information document generally mentions in detail all the facts required by an investor before taking an investment decision.
In short, adding multi-asset allocation funds to your mutual fund portfolio can be seen as a prudent decision, provided you go through all the documents related to the scheme. Apart from this, it is equally important for you to be aware of your financial goals, risk appetite and timing of investment before investing in these funds. Fund houses these days provide investors an opportunity to clear all their doubts regarding the schemes before starting their investment journey.
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.