Multi-asset allocation (MAA) funds can help investors pursue a diversified portfolio strategy in an environment of uncertainty and market volatility, a report by Business Standard suggested.
The market daily noted that these funds must invest in at least three asset classes, with a 10 percent allocation to each. While most offer exposure to equities, debt, and gold, some also invest in real estate and infrastructure investment trusts and international equities, it added.
Most MAA funds have a defined asset allocation range they operate within, informed BS.
The core advantage of these funds is diversification, stated the report. “When wealth is spread across various asset classes, the potential to earn risk-adjusted returns can increase manifold,” says Ashish Naik, equity fund manager, Axis Mutual Fund. He added that such a fund reduces risk exposure and increases the possibility of earning consistent returns.
MAA funds also undertake rebalancing on the investor’s behalf, added BS.
However, the market daily cautioned that MAA funds are likely to underperform equity funds in bull markets. These funds are likely to offer higher returns than debt but lower than equity funds. Sometimes, asset classes that generally have a low or negative correlation don’t behave in the textbook manner, further warned BS.
New investors and those who don’t want to invest too much time and effort on making investment decisions may go for these funds while those who wish to retain control over their asset allocation should opt for separate equity, debt and gold funds. Invest with at least a seven-year horizon for the diversification benefit to play out, advised the report.