January 20, 2023 / 06:12 PM IST
If you know anything about investing, you know that the one of the most commonly used terms is diversification, or the idea that you should not put all your eggs in one basket. However, it can be a task to identify the right investment choices with so many assets available to you as an investor. That’s where Multi Asset Allocation Mutual Funds come in. Let’s learn more about them below.
What Are Multi Asset Allocation MFs?
As the name suggests, Multi Asset Allocation Mutual Funds utilise investments from depositors across different assets. These are hybrid funds that typically invest at least 10% in at least three different categories of which two are equity and debt and another one can be commodities with REITs units issued by REITs/InviTs depending on the fund house and fund in question.
Benefits of Multi Asset Allocation MFs
The biggest benefit of Multi Asset Allocation Funds is that it allows investors to tap into different kind of asset category with the sole aim of aiming to grow their money during a bull run and protecting their assets when global headwinds favour bears. Diversification instantly reduced the risk of losing all of investors’ money at one go as all asset classes do not overperform or underperform together.
Multi Asset Allocation Funds also carry lesser risk compared to most hybrid funds since the invested amount is spread across multiple asset categories and these can be a huge source of relief, especially during current times, when markets seem to be swinging wildly.
Who Should Invest In Them?
Multi Asset Allocation Funds are especially recommended to investors seeking diversification in their portfolio without actually investing in various different assets. This fund will do the needful on investors’ behalf and introduce them to new asset classes.
Multi Asset Allocation Funds can also benefit disciplined investors, especially the ones who understand and value the importance of SIP as the invested amount can help to grow and protect the capital over multiple cycles.
Additionally, these funds are also helpful from a taxation perspective. For investors who hold on to these funds over three years, only a rate of 20% with indexation will be levied on their long-term capital gains. If an investor holds these funds for less than three years, then they will be liable to tax on their short-term capital gain tax according to their predefined tax slab.
Finally, these funds are also suitable for investors who aren’t willing to take a high level of risk by aggressively going for one asset class and putting all their money in it.
Moneycontrol journalists were not involved in the creation of the article.