Top 10 Multi Asset Allocation Funds to Consider in 2022

Multi asset allocation funds are open-ended hybrid schemes that invest in at least three asset classes. Additionally, the minimum allocation for each asset has to be 10%. These funds usually invest in equities, debt instruments and other asset classes like gold, Commodity ETFs, units of REITs, InvITs, etc. 

The primary aim of these hybrid funds is to leverage multiple asset classes to get the best possible returns in different market conditions. In addition, these funds spread the overall risk across different asset classes.

List of Top 10 Multi Asset Allocation Funds in 2022

Given below is a list of the best multi asset allocation funds in India in 2022 based on their one-year annualised returns: 

How Do Multi Asset Allocation Funds Work? 

Fund managers of these schemes formulate strategies to invest across multiple asset classes based on the objective of the scheme. Please note that different types of assets perform differently across time and economic phases. As a result, a multi asset allocation fund can fulfil every asset allocation need that an investor may have. 

The most common asset classes that multi asset fund managers invest in are equity, debt and gold. Nowadays AMCs (Asset Management Companies) have also begun including international equity in their portfolio. 

As per finance experts, it is rare for both equity and debt to perform well simultaneously. Furthermore, gold fares well when the economy is going through a gloomy period and other asset classes are performing poorly. Diversification in a multi-asset allocation fund’s portfolio ensures that investors are not at the mercy of a single asset class. 

Features of Multi Asset Allocation Funds

Discussed below are features of multi asset funds: 

• The portfolio of multi asset allocation mutual funds consists of various assets like equity, fixed income instruments, financial derivatives, index tracking funds, and commodities like gold, etc. 
• The presence of diverse asset classes in the portfolio enables fund managers to balance risk and rewards. Moreover, it ensures the delivery of steady and long-term returns in volatile markets depending on the portfolio allocation.
• A multi-asset allocation fund facilitates exposure to various asset classes. The level of diversification is similar to institutional investing.

Benefits of Multi Asset Funds 

Discussed below are the benefits of multi asset allocation mutual funds: 

• Mitigates risks

Investing in these mutual fund schemes involves relatively low risks. As the investment is spread across various asset classes, this reduces the overall risk factor of the scheme. Therefore, multi asset allocation schemes are associated with fewer risks than equity or equity-oriented funds.

• Offers stable returns

These funds carry the potential to generate relatively stable returns. This is because the debt component and other assets are comparatively less volatile than equity investments. Moreover, these funds are less susceptible to market fluctuations compared to equity funds.

• Diversified portfolio 

Multi asset allocation funds carry an enhanced benefit of diversification in their portfolios. This is because the scheme contains different asset classes, which perform differently Based on the market conditions. This helps to mitigate risks as losses from one asset class might offset gains from another. It also improves the overall returns. 

• Low cost of investment 

People get the advantage of investing in various asset classes at a low cost. This is particularly beneficial because the expenses for individually investing in gold and popular stocks are very high. Furthermore, the expense ratio of multi asset funds is low, which helps investors earn better returns. 

Who Should Invest in Multi Asset Allocation Funds?

• Multi asset allocation funds are suitable investment options for investors with a medium-risk appetite.
• Investors comfortable with staying invested for a minimum of three years can invest in these schemes. 
• Moreover, multi asset funds suit people who wish to invest in funds for a stable source of income. 

Risks Associated with Multi Asset Allocation Funds 

Given below are vital details related to the risks of multi asset funds:

• The equity or equity-linked instruments carry the risk of volatility or concentration in a single category. 
• Debt instruments are associated with liquidity risk, credit risk and interest rate risk. 
• Investments in gold are associated with the risks of inadequate growth and tax inefficiency.

Taxation of Multi Asset Allocation Schemes 

Multi asset allocation funds are more tax efficient and cost-efficient than investing in individual assets. As they are a category of hybrid fund, their taxation would depend on the dominant asset class. 

For example, if a multi asset fund holds 65% or above of equity exposure, taxation rules for equity funds will be applicable. However, if the dominant asset class is debt, the multi asset fund will be taxed like a debt fund. 

Investors may receive dividend income from their mutual fund. This gets added to an investor’s income and taxed as per his/her income tax slab rate. 

The following tables show the taxation of capital gains of multi asset allocation funds:

For short-term capital gains (STCG):

For long-term capital gains (LTCG):

Important Things to Remember before Investing 

Listed below are essential factors that an investor must remember before opting for a multi asset allocation fund: 

• Check the scheme-related document 

Investors must thoroughly check the scheme-related information documents. This will help them understand and analyse the specific exposure to asset classes. 

• The fund manager’s role is important 

Evaluating the expertise and past performances of fund managers is essential. This is because fund managers are responsible for formulating investment strategies that will affect the fund’s returns. 

• Do not forget to assess your risk profile

People need to ensure that the multi-asset fund’s investment strategy is in line with their risk appetite. If that is not the case, your investment might fail in achieving your financial goals. 

• Consider the investment horizon 

Before investing in any multi-asset allocation fund, ensure you are comfortable with staying invested for 3 – 5 years. Otherwise, choose an investment time horizon you are comfortable with. 

Final Word

This blog has listed the top 10 multi asset allocation funds and provided crucial information. These open-ended schemes mandatorily invest in a minimum of 3 asset classes. Reduced risks, diversified portfolio and low cost of investment are some of the benefits of investing in these mutual fund schemes.

FAQs about Multi asset allocation funds