Every year, there are distinct asset classes that become top-notch performers. No matter whether it is debt, equities, real estate, gold, or cryptocurrencies, all of them have witnessed a purple patch period and are at times out of favor.  A multi-asset fund is a mutual fund category that manages portfolios with a combination of distinct asset classes. The idea here is to pick and select a combination of various asset classes in a manner that the portfolio endows steady returns in different market conditions.

What is a multi-asset fund?

Multi-asset strategy brings in distinct kinds of asset classes to form a diversified portfolio. Such asset classes often contain bonds, stocks, and commodities involving gold. Currently, fund houses have even started to include real estate and international equity funds in the portfolio mix.

The rationale behind such asset classes is that every asset acts differently during different economic phases. So, select a combination of assets according to the market and economic situation to avail a steady return. For instance, it is extremely uncommon to view both the debt market and equity market doing thoroughly well in the same period. Over the past 2 decades, this negative or weak correlation between Indian bonds and equities has been viewed during the mid-2000 bull market, COVID – 19 induced-fall in 2020, and post-correction recovery. In this same fashion, equities and gold usually move in opposite directions. While equity requires expansion and economic growth to flourish, gold often tends to perform when the economic scenario is doomed. Thus, to sum this up, a multi-asset fund’s unique selling proposition is around making sure your investments are not at the mercy of just one asset class. If any of your asset classes is underperforming, other asset classes in your portfolio can simply compensate for such underperformance. Such funds are often considered one of the prudent ways to invest in mutual funds as they have the potential to deliver a balanced return at considerably low risk in different market conditions. Owing to this reason, multi-asset funds often are marketed as an all-wealth funds.

Who should opt for the multi-asset funds?

Multi-asset funds make your life simple as a mutual fund investor. They deliver long-term, stable returns, manage the risk through asset diversification, respond strategically to changes in the market, and use the services of an expert fund manager. In simpler or multi-assets set funds are positioned as a 1 stop mini portfolio. It means that regular investors do not need to choose multiple funds in distinct asset classes as they can easily choose one multi-asset mutual fund that invests in different asset classes.

However, note that such mutual funds investment plans like any other investment instrument come with certain drawbacks. The first disadvantage is that your return expectation must not be very high. A low double-digit or high single-digit return is most probably the best one-stop scenario. Thus, you must expect nearly 8-12 percent return p.a. Next, there is always a chance of misalignment with your preferred asset allocation. It means multi-asset funds aren’t personalized, which means their structure may not match your risk tolerance level.