Diversifying With Ease: Investing In Multiple Assets Through One Mutual Fund

Individuals seeking to invest in multiple asset classes through a single scheme may find mutual funds to be a suitable option. This can be an alternative to handpicking different asset classes and individually investing in them. The good part is that investing in multiple assets through one mutual fund offers diversification, convenience, professional management, cost efficiency, and access to different markets and sectors – all in one go.

• Table of contents

1. How does investing in multiple assets through one mutual fund work?
2. Why invest in multiple assets through one mutual fund?
3. How to Invest in Multi-Asset Mutual Funds
4. Benefits of Investing in Multiple Assets Through One Mutual Fund
5. How do I choose a suitable mutual fund for diversification?
6. What are the risks associated with investing in multiple assets through one mutual fund?

How does investing in multiple assets through one mutual fund work?

Investing in multiple assets through one mutual fund involves carefully analyzing each scheme’s asset allocation and diversification strategies. Mutual funds pool money from various investors to invest in diversified asset classes, which may include stocks, bonds, cash equivalents, and other assets depending on the investment objective of the schemes.

Amongst mutual funds, hybrid funds invest in varying proportions of different assets. For example, a balanced advantage fund may allocate investments across equity and debt, while a multi-asset allocation funds may include additional investments in gold.

Why invest in multiple assets through one mutual fund?

Here are 3 main reasons why you should consider investing in different asset classes through one mutual fund:

1. Diversification: One of the obvious reasons why people start thinking about how to invest in different asset classes with one scheme is diversification. By spreading investments across different asset classes, investors can spread the overall risk in their portfolios.
2. Managing volatility: The inclusion of different asset classes with varying risk profiles helps mitigate the impact of adverse market conditions on the overall portfolio. Investing in multiple assets through one mutual fund provides effective risk management as underperformance in one asset class may be offset by good performance in another.
3. Cost efficiency: Mutual funds benefit from economies of scale to offer lower investment costs compared to individual investing. By spreading transaction costs, administrative expenses, and research costs across a large investor base, mutual funds offer cost-efficient investment solutions to investors.

Professional fund management: Professional fund management in mutual funds offers expert oversight and strategic allocation of investments, optimizing returns while managing risks. This approach allows investors to benefit from the knowledge and experience of seasoned fund managers, providing access to diversified portfolios tailored to their financial goals, without requiring individual research or active management.

How to invest in multi-asset mutual funds

1. Choose a platform: You can choose to invest via online platforms, portals of mutual fund houses or a SEBI-registered advisor

2. Open a Demat and trading account: Online investments require a Demat and trading account, often provided by online platforms.

3. Know your customer (KYC) verification: Complete KYC by submitting documents like PAN and Aadhar cards.

4. Choose a multi-asset fund: Research funds based on objectives, asset allocation, performance, and expense ratios. Consider risk tolerance, investment horizon, and financial goals.

5. Invest: Decide on lump sum or SIP and initiate investment through the platform.

6. Monitor your investments: Regularly review and rebalance your portfolio to maintain desired allocation.

Benefits of investing in multiple assets through one mutual fund

Investing in multiple assets through one mutual fund offers several benefits:

Diversification: Spreading investments across asset classes like equities, debt, and gold minimizes the impact of poor performance in any single asset. Diversification helps reduce portfolio volatility, making it less vulnerable to market downturns.

Convenience: One fund handles the diversification, saving you from managing multiple investments. Track and manage only one fund instead of several individual investments.

Cost efficiency: A single fund typically has fewer transaction costs compared to investing in multiple individual securities.

How do I choose a suitable mutual fund for diversification?

Follow these steps to identify the right mutual fund type for yourself:

1. Define your investment goals clearly.
2. Assess your risk tolerance.
3. Familiarize yourself with different asset classes to choose the ones most suitable for you.
4. Determine suitable multi-asset allocation mutual fund categories.
5. Assess the fund objective, expertise of the fund manager and the investment strategy of the fund.
6. Factor the costs and fees associated with the mutual fund investment.
7. Make the investment and review the performance periodically.

What are the risks associated with investing in multiple assets through one mutual fund?

Mutual funds investing in multiple asset classes may be exposed to these types of risk:

• Market risk: Fluctuations in the overall market or specific sectors can impact the performance of the fund's underlying holdings, potentially resulting in losses for investors.
• Liquidity risk: Some assets held within a mutual fund may be difficult to buy or sell without affecting their market price. This can affect the fund's ability to meet redemption requests or execute trades efficiently.
• Interest rate risk: Mutual funds investing in fixed-income securities are exposed to interest rate risk. When interest rates rise, bond prices typically fall and vice versa.

Conclusion:

Investing in multiple asset classes through one mutual fund offers benefits like diversification, convenience, and professional management. However, investors must define their goals, assess their risk tolerance, and choose suitable asset classes to invest in. By spreading investments across different assets through a single mutual fund, investors can potentially mitigate risk and optimize returns.

FAQs:

What is the minimum investment required to invest in a diversified mutual fund?

The minimum investment amount for a mutual fund may vary depending on the fund house and mutual fund scheme. However, the initial entry barrier is usually as low as Rs. 500.

How often should I review and rebalance my diversified mutual fund portfolio?

Conducting an annual review of your diversified mutual fund portfolio is a good starting point. You can also review and rebalance it in the case of market volatility, change in financial goals and so on.

Can I customize my asset allocation within a diversified mutual fund?

No, you cannot customize it. Diversified mutual funds are professionally managed investment vehicles that pool money from multiple investors to invest in a diversified portfolio of asset

Can I choose my own asset allocation in a multi-asset mutual fund?

In multi-asset mutual funds, investors generally cannot directly control asset allocation. Fund managers adjust allocations based on market conditions and fund objectives. Investors, however, can select funds aligned with their risk tolerance and goals. While target allocation ranges exist, direct customization is not typical.

What types of assets are included in multi-asset mutual funds?

Multi-asset mutual funds diversify across asset classes like equities (large-cap, mid-cap, small-cap), debt (government and corporate bonds, short-term debt), gold, commodities, real estate (REITs), and alternatives (hedge funds, private equity). Asset class inclusion and allocation vary based on each fund's objectives and risk tolerance, aiding balanced portfolio management.

Who should consider investing in multi-asset mutual funds?

Multi-asset mutual funds can be a suitable investment option for a wide range of investors, but they are particularly well-suited for investors with long-term goals (5 to 10+ years), or those seeking diversification. Managed by professionals, they benefit busy individuals and provide a balanced approach by investing across equity, debt, and other asset classes. They simplify portfolio management while balancing risk and returns.

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.