MUTUAL FUNDS: Multi-asset funds for lower drawdowns

As the markets near their all-time highs and investors become wary, asset management companies are launching multi-asset funds. Investing in these low-correlated funds can safeguard the portfolio from drawdown and inflation risk, helps in diversification and get better risk-adjusted returns.

These hybrid funds invest in at least three asset classes — equity, debt and gold—with a minimum allocation of 10% to each and are taxed at lower rates. Fund managers can strategically adjust the allocation to optimise returns and manage risk effectively. By doing so, multi-asset funds offer investors a more stable and less volatile investment journey.

This month, two fund houses have launched multi-asset funds. Subscription for the new fund offer of DSP Multi Asset Allocation Fund (MMAF) will close on September 21 and that of Kotak MAAF will close on September 14. Subscription for Shriram MF’s MAAF closed on September 1. At present there are 13 such funds in the market, out of which three were launched this year. The launch of multi-asset funds addresses the evolving preferences of retail investors for hassle-free, diversified, and professionally managed investment options.

Harshad Chetanwala, co-founder,, says this strategy gives complete freedom to the fund management team to decide on ideal allocation based on the environment. “Like balanced advantage funds, these funds are preferred by investors who want to invest across different asset classes along with gold, international equity and REITs in some cases. At the same time, the fund managers take the call on the portfolio and weightage across asset classes which can give some more comfort to a segment of investors,” he says.

The fund managers have the option to increase the allocation of equity when they believe the markets have higher upside potential and can reduce the allocation during uncertain times. They can also increase the allocation of debt when the interest rate scenarios are in favour and same for the gold.

Sreeram Ramdas, vice president, Green Portfolio PMS, says debt and gold allocation are low-volatile assets compared to equities. “Multi asset funds have a significant allocation to gold – upwards of 15% in some funds, along with allocation towards investment-grade debt, which minimises the overall volatility compared to the markets,” he says.

Low correlation

Equity and debt have a low correlation. However, as markets are currently at all-time high, multi-asset investing can make more sense. Moreover, according to a study by Vanguard, asset allocation is responsible for up to 90% of a portfolio’s returns over the long-term.

Anirudh Garg, partner and head of research, Invasset PMS, says these funds aim to deliver consistent returns with lower risk, making them suitable for varying risk appetites. “In today’s dynamic market landscape, investors seek diversification to mitigate risk and achieve stable returns. Retail investors, often overwhelmed by the complexities of managing individual asset classes, are drawn to multi-asset funds as an all-in-one solution that simplifies their investment journey.”

Retail investors are particularly attracted to multi-asset funds as they provide access to a professionally managed portfolio that adapts to different market conditions. For fund houses, these offerings align with the growing demand for simplicity and convenience in investing.

“However, remember that diversification should not be done at a fund level as it becomes difficult to reallocate across asset classes as and when required,” says  Feroze Azeez, deputy CEO, Anand Rathi Wealth. “Investments should be based on an asset allocation strategy which should be set at a portfolio level.”

Protect the downside

Multi-asset class would always have the equity asset class as a primary asset class. However, fund managers would have the liberty to change asset allocation to changing economic environment, interest rate fluctuation or investor sentiments.
Akhil Bhardwaj, senior partner, Alpha Capital, RIA, a registered investment advisor, says efficiently shifting money in the prospective asset class and cutting exposure in not so potential asset class would protect the portfolio during market downturns and simultaneously capture equity upside. “Diversification into zero, negative or less correlated asset classes which manage the volatility of funds can provide a smooth ride to investors. Selection of multi-asset funds would be dependent on the profile of the investor.”


Fund managers can adjust the allocation across asset classes to optimise returns and manage risk effectively

Preferred by investors who want to invest across equity, debt and gold, along with RIETS and international equity

Asset allocation is responsible for up to 90% of a portfolio’s returns over the long-term