What Are Multi-Asset Mutual Funds?
Multi asset mutual funds, as the name suggests, are all-in-one funds that are invested in three asset classes – equity, debt and gold. Typically, multi asset funds are conservative in nature and have high exposure to debt (50% – 90%) and some exposure to equities (up to 40%) and gold (upto 35%). But some of these funds may have more exposure to equity or gold also. Some others may have equal exposure to all the three asset classes. Multi asset fund is an attempt to offer risk adjusted returns to investors who don’t want to track the market or search for the ideal equity based mutual funds.
Benefits of Multi Asset Funds
Diversification – The biggest benefit of multi asset funds is their diversification. For the long term investor looking for a way to invest in all the three asset classes can benefit from these funds.
Professional Management – Asset allocation and rebalancing for multi asset mutual funds are taken care of by trained professionals. So as an investor you don’t have to worry about being a financial pro and carry out these tasks yourself. This is particularly beneficial for investors in India, where financial literacy is not very high.
Cost Savings – If you have invested in multiple assets, especially debt and gold the traditional way and you need to do rebalancing by selling any of the assets, you will be taxed on the income from such sale. With multi asset funds, you can save these costs.
Drawbacks of Multi Asset Funds
Lower Returns – Since Multi asset funds are blended funds their returns will always be lower than that from any of the asset classes individually. Less risk means less return.
No Way to Choose Best Funds – With multi asset funds you will have to go with the fund investment options available with the fund house. You will not have the option of choose the best funds from various fund houses for each of the asset class.
Tax Implications – Since most multi asset funds invest less than 65% in equity, for tax purposes they are considered as debt funds and income from redeemed funds is liable for short term capital gains tax. One has to remain invested for minimum three years to claim long term capital gains benefits.
Who Should Invest in Multi Asset Funds and When?
As evident from the above discussions there are pros and cons of investing in multi asset funds. The key therefore, is to invest in such funds only in certain scenarios.
Invest in such multi asset funds where the asset allocation is compatible with your risk profile. If you are conservative go with funds which have high debt exposure. If you are risk taker go for funds with higher equity exposure.
Overall, you should go for multi asset funds only if you not knowledgeable enough in managing funds or doing asset allocation and rebalancing yourself. If moving in and out of different fund classes makes you anxious and is more than what you can handle, then multi assets fund is the right choice for you.