MARKETS News: 7th Sep 2020
Mutual Fund Investments: Multi asset funds and asset allocation.
Mutual Funds mobilize money from various investors, pool them and deploy them in various stocks of diverse sectors like I.T, Pharma, entertainment, cement, steel, Banks, NBFCs etc., They also promote Debt funds and Hybrid funds-both Equity and Debts. Like individuals are advised to invest in diverse assets to reduce the risk and to enhance the returns, MFs too do the same by investment in diverse sectors by offering Multi asset funds. (MAF).
Multi asset funds or mutual fund schemes that invest in multiple asset classes are in vogue these days. Several mutual fund houses and their sales force are pushing these funds as a one-stop solution for the `financial planning needs’ or ‘asset allocation needs’ of investors. Another sales pitch is that these schemes can offer better returns with lower volatility.
To begin with, let us see what these funds do and what they don’t. One, these schemes, as said earlier, help you to invest in multiple asset classes. They typically invest in equity, debt, and gold. The latest addition to the asset class list is overseas equity. That means you can use these schemes if you are looking to invest across different asset classes. The fund manager would buy and sell these assets based on their outlook of the prospects of these asset classes.
It is extremely important to look at where the scheme proposes to invest and in what proportion. Also, how the schemes plan to manage the allocation to them.
That brings us to the claim of financial planning and asset allocation needs.. Mutual funds cannot offer you customization. They invest in a general basked of assets and the allocation remain the same for all investors.
Financial planners and mutual fund advisors believe that a set kind of asset allocation can never fit different investors. Investors with different goals, risk appetite, investment horizons and tax liabilities cannot stick to an algo-based or set asset allocation to meet their goals.
“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.
Investors should also remember that all multi asset schemes do not follow a similar allocations to different asset classes. Some schemes like Nippon India Multi Asset Fund have 70% allocation to equities, which also includes international equities.
If any investor is following goal-based investing and has an asset allocation, then adding this category of scheme will add any value. For new investors where capital is limited, these schemes can be a starting point that can give them exposure to different asset classes. However, as we have seen in hybrid funds, when one side of the asset allocation is not being managed well, it drags the performance of the entire scheme. So an intensive study of the mode and quantum of investment sector wise will help the investor to get better returns.
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