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Things To Know Before Investing in Multi-Asset Allocation Funds

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Multi-asset allocation funds can be an effective way of diversifying your portfolio.

These hybrid mutual funds invest in at least three asset classes to balance reward potential with risk mitigation. This can make them suitable to a variety of investors – those seeking long-term wealth-creation potential as well as those looking for a diversified investment avenue that is less volatile than equity.

However, when considering any investment, understanding the basics and making informed choices is important. This article tells you some things to know before investing in a multi-asset allocation fund.

  • Table of contents
  1. Key factors to keep in mind before investing
  2. How can multi-asset allocation funds help in diversification?

Key factors to keep in mind before investing

Investment goals: Define what you hope to achieve, whether it's long-term growth potential or relative capital stability. Aggressive investors who are seeking high reward potential and are comfortable with significant risk may prefer funds with small or mid cap stocks over the balanced approach of multi-asset allocation funds.

Risk tolerance: Assess your risk-appetite. The asset allocation pattern of multi-asset funds can vary from scheme to another. The higher the equity allocation, the greater the risk.

Asset allocation: Review how the fund spreads investments across different assets. This diversification is key to managing risk and should align with your personal investment goals and risk tolerance.

Fund manager's expertise: Check the experience and past performance of the manager handling the fund. An experienced manager with a proven strategy for different market conditions can add significant value.

Liquidity needs: Consider how easily you can withdraw your money if needed. Some multi-asset funds offer more liquidity than others, which is important if you think you may need access to your funds at short notice.

How can multi-asset allocation funds help in diversification?

Multi-asset allocation funds are designed to offer a diversified portfolio in one investment. By including various asset classes, these funds help reduce the risk that comes from concentrating investments in a single area. This is especially beneficial during uncertain market conditions.

By incorporating a mix of equities, bonds and commodities or another asset class, multi-asset funds aim to take advantage of the unique benefits of each asset type.

For example, equities offer potential for wealth-accumulation over the long term, bonds can play a portfolio stabilising role along with income or modest return potential, and commodities can serve as a hedge against volatility while also offering growth potential in certain market environments.

The varying response of each asset class to market conditions helps in mitigating risk. Fund managers play a crucial role in this process, continually assessing economic conditions and rebalancing the portfolio in response to market movements.


Multi-asset allocation funds can be a valuable part of an investment portfolio, offering diversification and managed risk. Before investing, it's important to consider your financial goals, risk tolerance, and other factors outlined above. With the right fund, you can work towards achieving a satisfactory investment outcome.


What are the tax implications of investing in multi-asset allocation funds?
Investments in multi-asset funds are subject to capital gains tax, which depends on the holding period and the type of assets within the fund.

Can I switch between different asset classes within the fund?
Investors cannot change their portfolio, but fund managers regularly adjust the asset allocation within multi-asset funds to optimise performance and manage risk.

How do multi-asset funds perform during economic downturns?
Multi-asset allocation funds are typically designed to withstand economic downturns better than pure equity-oriented funds due to their diversified nature. However, performance can vary based on the specific asset mix.

How do multi-asset allocation funds adapt to changing market conditions?
Fund managers actively manage multi-asset allocation funds, adjusting the asset allocations in response to changes in market conditions and economic indicators.

Are there specific considerations for investors nearing retirement age?
For those nearing retirement, it is advisable to focus on multi-asset allocation funds with a higher emphasis on less volatile assets like bonds or fixed income, to mitigate impact on capital invested and ensure steady return potential.

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.