Multi-asset allocation funds remained a preferred choice for investors in June, emerging as one of the largest contributors to inflows into hybrid mutual funds.
Inflows into multi-asset allocation funds rose more than 22% month-on-month (MoM) in June. According to data from the Association of Mutual Funds in India (AMFI), multi-asset allocation funds attracted inflows of ₹4,810.76 crore in June, up from ₹3,928.51 crore in May, reflecting a 22.46% MoM increase.
The strong inflows come amid heightened market volatility driven by geopolitical tensions, foreign capital outflows, rising concerns over inflation, potential interest rate hikes and sharp movements across equities, gold, and other asset classes, leading investors to increasingly favour diversified investment strategies.
Although several multi-asset allocation funds have delivered positive returns over the past six months despite market volatility, experts caution that performance can vary widely based on a scheme’s asset allocation strategy and prevailing market conditions.
“Multi asset allocation funds reduce risk from equity asset class and also utilise opportunities arising from other asset classes like precious metals for alpha creation and use fixed income assets to ensure overall moderate returns even when equity markets go through a tough time,” said G Chokkalingam, the founder and head of research at Equinomics Research.
Under SEBI regulations, multi-asset allocation funds are required to invest at least 10% of their portfolio in each of the three asset classes. Among the largest funds in this category by assets under management is the Nippon India Multi Asset Allocation Fund.
According to DD Sharma, MD, MF King, these funds have delivered strong returns over the past few years and have continued to remain in positive territory even over the last six months. Among the leaders in the category is the Nippon India Multi Asset Allocation Fund Direct Growth, which has generated an annualised return of around 20% over the past three years. Other top-performing schemes include multi-asset funds from SBI, Aditya Birla Sun Life, and Motilal Oswal, which have posted annualised returns of approximately 17%, 17%, and 14%, respectively, during the same period.
Why is portfolio diversification important?
According to VK Vijayakumar, Chief Investment Strategist, Geojit Investments, the strongest argument in favour of multi-asset funds is that they can minimise the risk in investment through diversification. Since multiple-asset funds invest in equity, debt and commodities like gold, there is built-in diversification in these funds.
“Multi-asset funds are highly relevant in the present times, characterised by huge volatility in equity. Particularly now, gold has corrected significantly from the peak, and, therefore, the downward risk is low. Even though debt offers only moderate returns, investment in secured debt instruments can offer decent inflation-beating returns with very low risk,” Vijaykumar said.
He further noted that a major benefit of multi-asset investment is that it has tax advances. Multi-asset funds with minimum 65% equity exposure are treated as equity funds for taxation, which means long-term capital gains are exempt from tax up to ₹1.25 lakhs and gains beyond that are taxed at only 12.5%, he said.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
