Understanding allocation strategies of multi asset funds

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Multi asset allocation funds aim to earn returns while mitigating risks by diversifying investor portfolios and making timely adjustments to them based on market trends.

These funds invest in at least three asset classes – such as equity, debt, and commodity like gold and/or silver– and alter the weightage of each based on what is performing well or poorly in the market but with a minimum allocation to each asset class.

Read on to learn more about multi asset allocation fund investment strategies.

  • Table of contents
  1. Multi asset allocation fund investment strategies
  2. Multi asset allocation fund investment tips
  3. FAQs

Multi asset allocation fund investment strategies

According to the Securities and Exchange Board of India, a multi asset allocation fund needs to invest in at least three asset classes, with an allocation of at least 10% in each asset class. The asset classes could include debt, equity, real estate, commodities, among others. Most mutual fund schemes have a typical allocation range for the asset classes, within which they can increase or decrease the weightage of each based on market movements.

Here are some of the important multi asset allocation fund strategies:

Diversification: Creating a diversified portfolio at an individual level can be difficult. A multi asset mutual fund helps investors achieve diversification within a single scheme. This is important because instead of pegging your fortunes to only one or a limited number of securities or instruments, a diversified portfolio distributes risk across multiple asset classes and instruments.

Flexibility: The room to adjust the portfolio allocation between asset classes helps such funds potentially manage market volatility better. When a particular asset is performing well in the market, the fund manager can increase the exposure to it, or can reduce the weightage of an asset class that is faring poorly at a given time.

Asset class correlation: The correlation between two asset classes is a measure of how they move with respect to each other. If two asset classes have a negative correlation, that means they move in opposite directions – one tends to go up when the other goes down. For instance, debt and equity often move in opposite directions. So, a multi asset allocation fund can rebalance a portfolio in favour of equity when stocks are doing well or can increase the weightage of debt if fixed-income instruments are providing more stable returns in a volatile environment. If both debt and equity are performing poorly, other asset classes such as gold, silver or real estate may emerge as a better bet.

Strategies of individual schemes: Multi asset allocation fund investment strategies vary across schemes based on risk profile and goals. For instance, a low-to-moderate risk multi asset allocation fund may prioritise mitigated impact on capital invested or income generation with a focus on debt over equity and other assets. Schemes with a higher risk profile may skew towards equity. Some schemes may also invest in foreign securities to benefit from international market trends or may use the derivative market for hedging or arbitrage opportunities.

Multi asset allocation fund investment tips

Here are some things to consider when choosing which fund to invest in:

Past performance: Historical trends do not guarantee future performance, but it is useful to check the historic returns of a scheme – if it has been around for some time – and its performance over different market cycles. Compare a scheme’s performance with that of its peers in the same category and against its benchmark index.

Align your risk appetite with scheme: Looking at past returns is not enough. The risk profile of a scheme needs to match your own risk tolerance level. Multi asset allocation funds can range from low to very high risk based on their asset allocation pattern. High-risk funds usually have a large equity component, which may not be suitable for conservative investors who are more comfortable with fixed-income securities.

Consider your investment horizon and goals:
A high-risk investment with potential for capital appreciation may be suitable to you if your investment horizon is long – over five years or so – because markets can be quite volatile in the short term but tend to stabilise in the long run. In contrast, for a shorter investment horizon, a low-risk scheme that focuses on income generation or less volatility by investing predominantly in fixed-income funds may be more suitable.

Check the fund manager’s details: Since this is an actively managed fund with the scope for frequent portfolio modification, the fund manager’s role is key. Hence you must research the experience and past performance of the fund manager.

A multi asset allocation fund can lower risk by spreading investments across different asset classes. However, you must look at your risk appetite, investment goals and the fund’s past performance before investing. It is also advisable to consult a financial expert.


What are multi asset allocation funds?
multi asset allocation fund invests in at least three asset classes, with a minimum allocation of 10% in each. These could include equity, debt, commodities, real estate, and more.

What is the asset allocation strategy of multi asset allocation funds?
Such funds aim to build wealth over time while reducing risk. This is done by portfolio diversification and by altering the exposure of different asset classes in the portfolio based on market trends.

How to select a multi asset allocation fund?
You must check the typical asset allocation range of a portfolio – how much it usually invests in debt versus equity versus other asset classes in normal circumstances – to see if that aligns with your risk appetite, goals and investment principles. You should also look at the historical performance of a scheme – while keeping in mind that it is not a predictor of future returns – to see how it has fared against its benchmark, its peers and in different market conditions. It is also important to look at the experience and past performance of the fund manager.

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.