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:
|Name of Multi Asset Allocation Fund||1 Year Annualised Returns|
|ICICI Prudential Multi Asset Fund-Direct Plan-Growth||20.22%|
|Quant Multi Asset Fund-Direct Plan-Growth||19.53%|
|Tata Multi Asset Opportunities Fund-Direct Plan-Growth||8.89%|
|HDFC Multi Asset Fund-Direct Plan-Growth||7.15%|
|SBI Multi Asset Allocation-Direct Plan-Growth||7.14%|
|Franklin India Multi Asset Solution Fund-Direct Plan-Growth||6.12%|
|Nippon India Multi Asset Fund-Direct Plan-Growth||5.13%|
|UTI Multi Asset Fund-Direct Plan-Growth||4.48%|
|Axis Triple Advantage Fund-Direct Plan-Growth||3.08%|
|Motilal Oswal Multi Asset Fund-Direct Plan-Growth||1.92%|
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):
|Type of Multi Asset Fund||Short Term Capital Gains||Tax Rate|
|Equity-oriented multi asset allocation funds||Less than 12 months||15%|
|Debt-oriented multi asset allocation funds||Less than 36 months||Income Tax Slab rate of investor|
For long-term capital gains (LTCG):
|Type of Multi Asset Fund||Long Term Capital Gains||Tax Rate|
|Equity-oriented multi asset allocation funds||12 months and more||Tax-exempt up to Rs. 1lakh10% above Rs. 1lakh|
|Debt-oriented multi asset allocation funds||36 months and more||20% with indexation|
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.
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
What kind of returns can I expect from multi asset allocation mutual funds?
As per recent records, multi asset allocation funds have generated returns at 10.51% per annum in the previous five years. Their three-year annualised returns stand at 15.07%. Additionally, they have generated ten-year annualised returns at 9.18% per annum.
What is the ideal investment horizon for multi asset allocation funds?
A multi-asset fund’s ideal investment horizon is a minimum of five years. Such a medium to long-term investment horizon is recommended as it gives time for the scheme to generate sufficient returns.
Are multi-asset mutual funds suitable for experienced investors?
Multi asset allocation funds are more suitable for first-time investors or people with a low-risk appetite. Experienced investors or people with financial advisers can invest in these schemes as per the investor’s objectives.
What are the different types of capital gains that investors can expect to earn?
Upon redeeming their investments in multi asset allocation funds, people can expect to earn STCGs (Short Term Capital Gains) or LTCGs (Long Term Capital Gains). This depends entirely on the holding period of the fund.