Multi-asset allocation funds (MAAFs) are currently the best performing category among hybrid funds across the one-, three-, and five-year horizons. Their diversified structure has helped them deliver strong returns in recent times. “Funds that had allocated to gold and silver saw a significant boost in their returns due to the recent rally,” says Jiral Mehta, senior manager research, FundsIndia.
Fund management approach
MAAFs must invest in at least three asset classes, with a minimum 10 per cent in each. “Fund managers allocate money across asset classes based on market outlook, valuation, and risk appetite,” says Harsh Vira, chief financial planner and founder, FinPro Wealth.
Benefit from tailwinds across assets
These funds provide a readymade, diversified portfolio. “They help investors participate in multiple asset classes and benefit from their tailwinds over time,” says Akhil Chaturvedi, executive director and chief business officer, Motilal Oswal Asset Management Company. “They reduce risk through diversification and provide stable returns across market cycles. Investors also gain from professional management and automatic portfolio rebalancing,” says Vira.
Asset allocation becomes more difficult
MAAFs may not fit seamlessly in existing portfolios. “Adding them can result in unintended overweight or underweight positions and loss of flexibility in asset allocation,” says Mehta. These funds may underperform in strong bull markets. “Returns can also be lower if fund managers mistime asset allocation,” says Vira.
For conservative investors
MAAFs are meant for investors seeking stability with growth potential. “Any investor who is unsure of asset allocation across equities, fixed income, and gold can go for these funds,” says Chaturvedi. “These funds are suitable for those who prefer not to actively manage rebalancing,” says Aparna Shanker, chief investment officer — equity, The Wealth Company Mutual Fund. Abhishek Kumar, Securities and Exchange Board of India (Sebi)-registered investment advisor and founder, Sahaj- Money.com, suggests that investors with conservative or moderate risk appetite and a long investment horizon of at least five years may go for them. Shanker adds that new investors or those shifting from traditional products like fixed deposits can use them as an entry point to market-linked investments. They may allocate 10-20 per cent of their portfolio to MAAFs as part of their core holdings and enter via a systematic investment plan (SIP). Aggressive investors who prefer making their own tactical calls across asset classes may find these funds too conservative. Investors with horizon of less than three years should steer clear of them. “Experienced investors who already have a specified asset allocation can avoid these funds,” says Chaturvedi.
Pick the right fund
Review the fund’s asset-allocation strategy. “Favour funds where managers follow a clear, well-defined framework rather than making frequent or aggressive allocation shifts,” says Shanker. Kumar suggests checking if the fund maintains an equity allocation of 65 per cent or more for equity-like taxation. Examine the fund for performance consistency across cycles over three- to five-year periods. Measures of risk-adjusted returns like Sharpe and Sortino ratios, and of volatility, like standard deviation, should also be assessed. Direct plans should have an expense ratio below 1 per cent. “Avoid funds that offer poor downside protection or are heavily concentrated in one asset class,” adds Kumar.
Stay put
Existing investors should not react to short-term performance. Remain invested if the fund has maintained its strategy and performance consistency and continues to suit your goals. Continue SIP to benefit from rupee-cost averaging. Rebalance only if allocation in your portfolio has deviated significantly from target levels.