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Multi Asset Funds to Beat Market Volatility


Multi Asset Funds to Beat Market Volatility
Volatility in the market is no new phenomenon for us now. In the recent months we have seen erratic behavior not only in the Indian Markets but also globally, owing to the European debt crisis and fiscal pressures in the US. We are constantly witnessing bouts of upward and downward movements of interest rates, index levels and inflation.

In such challenging market conditions, most of us generally exit investments and wait till the market shows signs of gaining stability. However by doing so very often we end up missing out on opportunities when there is a sharp decline in the market. To beat this volatility, Multi Asset Funds have gained considerable popularity in the last few months. In the light of the recent Multi Asset NFO from a mutual fund major, we do a quick evaluation of this fund option to see if it is actually worth investing in.


Introducing Multi Asset Funds
The core principle in financial planning is efficient asset allocation and diversification, on the basis of one’s financial goals and risk appetite. By diversification of assets across different classes, one could greatly reduce the risk associated with a single asset class, thereby generating superior returns from the portfolio. Multi Asset Funds work using the same principle.
These funds are typically hybrid funds that spread your investment across different asset classes. The portfolio of these funds would comprise of a mix of Equity, Gold, and fixed income securities, thus spreading the risk across different assets. The investments are switched over from one asset class to another on the basis of market situations. So depending on the rally in the market, profits are booked and funds are appropriately allocated to other asset classes, to overall generate superior returns from the portfolio.

What Advantages Does the Fund Offer?
Reduces risk- The risk associated with a single asset class is greatly reduced owing to the diversification in the portfolio.
A readymade fund- With exposure to different asset classes, it is a readymade fund for those investors who lack, the time and knowledge to diversify their portfolio on their own.
Benefits in a single fund- Investors get the benefit of multiple asset classes in a single fund, without having to hold multiple mutual funds or schemes.
Expertise of Fund managers who churn the portfolio on the basis of market situations.
Tax Efficiency- Tax applicable only if units are redeemed within 12 months.
The Current Options Available
JP Morgan was recently out with an NFO of its Multi Asset Fund. Apart from this other existing funds in the market are Axis Triple Advantage Fund, Religare MIP Plus, Canara Robeco Indigo Fund and Taurus MIP Advantage Fund. Here is a look at their past performance.

Fund Name NAV(as on 27 Jan 2012) Returns- 6 months Returns- 12 months
Canara Robeco InDiGo 12.08 9.24% 16.80%
Taurus MIP Advantage 11.14 5.19% 11.14%
Axis Triple Advantage 11.00 3.51% 9.38%
Religare MIP Plus 11.27 3.60% 8.94%
Kotak Multi Asset Allocation 10.86 3.12% 8.38%

Multi Asset Funds- Should You Consider Investing?
Looking at the past returns of the fund, the short term returns (6 months to a year) have been hovering between 3 to 5%, owing to the large percentage of debt and gold component in the portfolio. Investors often find fixed deposits a better deal for the short term in comparison to the fund. What one must also remember is that diversification comes at a cost and most Multi Asset Funds come with high recurring expenses of around 2-2.5%. Funds also have an exit load of 1% if exited within 1 year and 2% if exited within 6 months. This charge is much higher when compared to other funds.

Multi Asset Funds are typically suited for low to medium risk appetite investors, and may prove beneficial to those with a long term investment horizon. These funds could generate superior returns in the long run, as they make use of the highs and lows across various economic cycles. Investors should also look at the fund manager’s expertise, track record and the reputation of the fund house before investing.

Story first published: Friday, February 3, 2012, 12:50 [IST]
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