Multi-Asset Allocation Fund: What You Should Know?

A multi-asset allocation fund is a type of mutual fund that invests across different asset classes. As per SEBI (Securities Exchange Board of India) , a multi-asset fund should invest in 3 asset classes at least - equity, debt and gold. Moreover, the fund must allocate at least 10% of the pooled funds into these asset classes. Let's delve deeper into these types of funds.

While it may seem like these funds offer diversification of the portfolio, that's not the primary aim of these funds. Rather it is to better manage the dynamic market movements and leverage from different asset classes. For instance, if the equity market is going up, the fund manager may pull out funds from other asset class such as debt or gold and allocate them to equity.Moreover, SEBI does not impose any restrictions on allocating funds as long as the 10% rule in at least 3 asset classes is followed. Thus, the fund manager may choose to invest in small-cap, mid-cap or large-cap equities as per the fund objective apart from investing 10% each into other asset classes.

Multi-Asset allocation funds are taxed based on their asset allocation. If 65% of the funds are allocated to equity, it will be taxed as an equity fund , else as a debt fund. Most funds release their prospectus stating it clearly if they will be equity-based or debt-based, helping investors decide better.

• Financial Goals and Risk Appetite It is important to choose a fund based on your financial goals and risk appetite. Make sure you choose a fund that aligns with your risk and investment profile. Read through the offer document carefully to understand the strategy the mutual fund intends to follow.
• Fund Manager A fund manager plays a critical role in the performance of the fund. Thus, look at the fund manager’s past records and other funds managed in a similar category to get an idea.
• Past Record Evaluate how a fund has performed through different market cycles. For best results, look at records of 5 years or more. Delve deeper into their changing asset allocation in different market scenarios.

Don't mistake a multi-asset fund to be an alternative to diversifying your portfolio. Invest in different asset classes individually to build a well-rounded portfolio that is in line with your objectives and risk profile.Multi-asset funds can potentially help you dynamic market movements and their effect on different asset classes.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.