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How Multi-Asset Allocation Funds Can Mitigate The Impact Of Market Volatility

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Market volatility is one of the biggest concerns of investors as it can result in fluctuations in the value of assets and even losses. Diversifying across asset classes such as debt, equity, and commodities can help mitigate some of these risks. This is because different asset classes often respond differently to the same economic conditions.

Such diversification is at the heart of multi-asset allocation funds. Such hybrid mutual funds invest in three or more classes and seek to balance risk and long-term return potential. This can make them appealing to various types of investors.

Let’s examine the allocation strategy of multi-asset allocation funds and how they seek to navigate market volatility.

  • Table of contents
  1. What is a multi-asset allocation strategy?
  2. How multi-asset funds balance risk and reward potential
  3. Risk and return of multi-asset allocation funds in market volatility

What is a multi-asset allocation strategy?

A multi-asset allocation strategy involves investing in diverse asset types, such as stocks, bonds, real estate, and commodities. The goal is to manage the trade-off between risk and return potential.
Second, multi-asset allocation funds are dynamically managed, so the weightage of each asset in the portfolio can be flexibly altered (subject to meeting the minimum asset allocation requirement) based on current market conditions and future outlook. This approach allows the fund to adapt to changes and potentially mitigate losses.

How multi-asset funds balance risk and reward potential

By spreading investments across various assets, multi-asset funds can potentially reduce the impact of a sharp decline in any one market segment. For example, when stocks may be performing poorly due to economic downturns, bonds might hold their value and some commodities may offer upside potential.

This diversification may potentially add relative stability to the fund’s overall performance, providing a smoother investment journey. Additionally, these funds often include investments like commodities and derivatives, which may behave differently from traditional stocks and bonds and act as a hedge against volatility.

By dynamically managing the allocation between these assets, fund managers can further mitigate the impact of extreme fluctuations on the investments. This strategy can enhance portfolio stabilising measures during downturns and capture potential upside when the market recovers.

Risk and return of multi-asset allocation funds in market volatility

The risk and return profile of multi-asset allocation funds is an important consideration. While these funds aim to reduce volatility and mitigate risk, they are still affected by market conditions and economic factors. The diversification, however, can make such funds less volatile than pure equity funds and more growth-oriented than debt funds.
The ability of the fund manager to effectively allocate assets and respond to market trends can also play a vital role in fund performance.


Multi-asset allocation funds seek to manage market volatility and optimise the risk-return balance through diversification across asset categories. They are suitable for investors who want a relatively less volatile investment experience but still seek inflation-beating return potential over the long term. Understanding the strategic allocation of these investments and the associated risks is important for making informed decisions. It is advisable to consult with a financial expert when making investment decisions.

How does a multi-asset allocation fund differ from traditional funds?
Multi-asset allocation funds invest in a variety of asset classes, unlike traditional funds, which typically focus on one type of asset. This diversification helps reduce risk and manage returns more effectively during different market conditions.

Can multi-asset allocation funds eliminate market volatility?
No, multi-asset allocation funds cannot eliminate market volatility, but they can reduce its impact on the portfolio by diversifying investments across various asset types.

What factors influence the performance of multi-asset allocation funds during market downturns?
The performance of multi-asset allocation funds during downturns may be influenced by the selection of securities, allocation mix, the timing of asset reallocation, the fund manager's expertise, and external economic conditions.

Are there specific industries or sectors favoured by multi-asset allocation funds during volatile times?
Multi-asset allocation funds do not typically favour specific industries or sectors; instead, they focus on diversifying investments across a broad range of assets to minimise risks associated with any single sector.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.