Multi-Asset Funds: Diversified Asset Allocation Within One Scheme
These are best suited for investors who are beginners, those with low-risk tolerance, retirees, and busy people.
The number of multi-asset funds in the market has increased but the inflows have been less as compared to other hybrid funds.
The advantage of increased exposure into various asset classes in the scheme is paired with the various risks associated with them.
What Is A Multi-Asset Scheme?
A multi-asset fund is a single scheme, where the portfolio is spread across asset classes. This hybrid fund allocates into various asset classes like equity, debt, commodity and real estate along with others.
These schemes are required to invest into three different asset classes, with at least 10% investment allocated to each class. A multi-asset fund is equipped with diversification into multiple asset classes in one scheme.
The spread of investments can be in equity, fixed income, real estate, as well as commodities like gold, silver and precious metals along with others.
Multi-asset funds are best suited for beginners, investors with low-risk tolerance, retirees, and busy investors, according to Infinity Asset Advisors' Chief Executive Officer Shalini Sekhri.
Despite the diversity in allocation, this scheme is subject to market risk, asset class risk and liquidity risk among others, Sekhri said.
One can individually invest in certain asset classes, but different asset classes often move in a non-correlated manner.
Essentially, the value of the various asset classes changes, and certain asset classes outperform others. These non-correlated moves can also be cyclical in nature as the value of some of these assets change with the economic cycle, demand, or the market cycles.
The issue with these changes in value and non-correlated movements make it hard for investors to be able to predict these movements and cycles. The reason for the rise or fall in the value of these assets are spread across factors that may be hard to foresee and account for.
Due to this uncertainty, investing across assets is better than putting all your funds into one. A multi-asset fund pairs the diversity of asset classes with relatively stable investments into one scheme.
Taxation In Multi-Asset Schemes
However, most of the multi-asset schemes invest more than 65% into equity. This is done to ensure that the scheme qualifies for equity taxation. Even though different taxation applies to asset classes like gold and fixed income, multi-asset schemes get taxed according to equity taxation.
Short-term capital gains—profit made on selling a stock within a year—are taxed at 15%. Long-term equity gains, which are over Rs 1 lakh, will be taxed at 10% without the benefit of indexation.
“There is only a limited data that is available for multi-asset funds,” said Vishal Dhawan, founder of Plan Ahead Wealth Advisors. Active investors may be aware of instruments with more tax-efficient structure, he said.
