While mutual funds over the past few year have not been rewarding compared to other asset class, still different products among the broader product class are being pitched to customers for their different exclusive advantage. Similar is the case with mulit-asset allocation mutual fund category:
What Are Multi-Asset Allocation Funds?
These can be opted for investors viewing to diversify to portfolio across asset class such as equity, debt, gold and now overseas equity.
But here what one must remember and note is that mutual fund managers managing these products do not do so in the individual interest of the investor. And it is important for an investor to keep track of the quantum that is being allocated to which asset and if it is suitable to his short or long term financial goal.
"The asset allocation varies from person to person as the life stage, needs and risk profile of each person is different. Multi Asset Funds have a common portfolio for all kind of investors. The fund is dynamically managed from economy and growth potential perspective, but there could be a scenario where some investor may not be in position to take additional risk or is in a position to take more risk than Multi Asset Fund. Hence, it cannot be put forward as common solution to all investors," says Harshad Chetanwala, CFP, MyWealthGrowth, a wealth management firm based in Mumbai.
So while portfolio diversification needs can be met, one may or may-not be able to meet asset allocation needs aptly as such needs vary from person to person and depend on their different goals, risk appetite, investment horizons as well as tax liabilities.
Furthermore, to an already diversified portfolio, this addition does no good.
Who Should Invest In Multi-Asset Allocation Funds?
These are good for novice investors providing allocation across asset categories with a limited amount but the problem here shall be that if the entire scheme is not managed well, then investors' return will suffer in the same proportion.
Other drawbacks of Multi-Asset Allocation Mutual Funds
1. Liquidity is another issue: As for short term goals, more of allocation needs to be made towards equity class.
2. Higher tax outgo: If treated as debt mutual fund with allocation of less than 65% in equity, investors may end up paying higher taxes.
Positives of Multi-Asset Allocation Mutual Funds:
Volatility is taken care of as managers viewing the return outlook change allocation across product categories. So, with mixed portfolio having modest allocation to equity investors can expect higher return than debt but less than equity.