What are multi asset funds?

Multi Asset funds or asset allocation funds are a relatively new category in the Indian mutual fund space.

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Multi Asset funds or asset allocation funds are a relatively new category in the Indian mutual fund space. They are officially known as multi asset funds, but many fund managers and advisors also call them asset allocation funds.

Multi asset funds invest across multiple asset classes. The most common asset classes invested by these schemes are: equity, debt, and gold. Lately, fund houses have started adding other asset classes like international equity to the portfolio. As you can see, these schemes can help you to diversify your investments across different asset classes.

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This helps you to reduce risk. Different asset classes behave differently in various phases in the economy. For example, it is very rare for both equity and debt markets do equally well at the same period. Similarly, gold tends to do well when there is gloomy outlook for the economy and all other asset classes are faring badly.

Investing in a diverse portfolio ensures that you are not at the mercy of a single asset class. When your equity investments are not doing well, the debt part of the portfolio may be doing well. When both equity and debt are not doing well, probably gold may do well. When Indian equity is faring badly, the US equity may be doing well.

However, a diversified portfolio also may result in lower returns. As you know, when you reduce the risk, your returns might also fall. So, you should have realistic return expectations of high single-digit or 10-12% returns from these schemes over a long period.

Though these schemes invest across different asset classes, they do not exactly offer you a solution to your asset allocation requirement. This is because mutual funds cannot offer you personalised solutions as they are designed as a standard product for the entire retail investors. If the allocation of the scheme matches your allocation, you are lucky. Stick to the scheme. However, do not assume that these schemes take care of your asset allocation job automatically.

Finally, do not use these schemes for short-term investments. Treat it like an equity scheme and invest with a long investment horizon of at least five to seven years. And expect a little lower return than your pure equity mutual funds over a long period.
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