5 Things to consider before investing in multi asset funds


The key to successful financial planning is to ensure that you follow the phrase which goes something like this – “Do not keep all your eggs in one basket”. Investment planning and financial planning go hand in hand. This adage may sound cliché, but it is essential for individuals to determine their appetite for risk and also take a look at their existing liabilities while determining where and how much to invest. Mutual funds can be an ideal place to invest especially if you carry some risk appetite. A risk averse investor generally prefers staying away from mutual funds because these are a pool of professionally managed funds that invest across a diversified portfolio of securities for income generation.

If you are young individual who is unhappy with their existing financial status and keen on investing to earn long term wealth creation, you can consider investing in multi asset allocation funds.

What are multi asset allocation funds?

These are open ended mutual fund scheme which invest in more than one asset class for income generation. As per SEBI guidelines, a multi asset allocation fund must invest a minimum of 10 percent in any three asset classes. Investors seeking to add a well-diversified mutual fund scheme to their existing portfolio can consider investing in multi asset allocation funds. Multi asset funds come under hybrid funds where the investment objective of schemes is to earn capital appreciation by investing in equity, debt, and other asset classes.

Things to consider before investing in multi asset allocation funds

Investment objective – Does your investment objective align with that of the multi asset scheme you are about to invest in? Those who are new to mutual funds or investing in general must talk to their financial advisor and discuss their financial goals before making an investment decision.

Schemes should be well diversified – According to market regulator SEBI, a multi asset scheme must invest 10 percent minimum in three asset classes. However, if the fund manager invests more in gold and less in equity, this can affect long term wealth creation. Gold generally acts as a hedge against falling markets whereas equity investments have a high risk returns tradeoff. Basically, even if the scheme demands minimum 10 percent investment in multiple asset classes, it is essential for the investment portfolio of a multi asset scheme to be more equity oriented. Before investing, investors must ensure that the scheme which they invest is well-diversified and also has enough allocation in equity.

Understand your risk appetite – Multi asset funds are open ended schemes which does not guarantee capital appreciation. Also, since their portfolio is exposed to equity markets, there is a good chance that your portfolio might incur losses over the short term. Investors should only invest the amount which they can afford to lose. To determine this, they need to first understand their risk appetite.

What is your investment horizon? – It is essential to have a long term investment horizon of at least seven to ten years while investing in multi asset allocation funds. Such schemes may or may not be able to perform over the short term, but they have generally outperformed their underlying index and other conservative schemes as well when held for the long run. Investors with short term investment horizon should reconsider investing.

SIP or lumpsum? – You can either make a onetime lumpsum investment or choose to start a monthly SIP in multi asset schemes. Systematic Investment Plan is a tool that allows you to invest small fixed amounts at regular intervals. Investors can also use SIP calculator a tool which can help them determine how many years they need to invest in order to get closer to their financial goals.

Francis Baylon
Francis Baylon is a creator, writer, and publisher with a deep knowledge of every heritage. Worldwide research taught her that every mountain top is within reach if you just keep climbing.

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