Global Investing Made Easy: Smart Strategies for Indians

Multi-asset funds help diversify across equities, debt, gold and global stocks with tax benefits

- Neil Borate

Over the past few years, a new fund category—multi-asset funds that invest in equity, debt, gold, and international stocks—has taken root in India.

With renewed interest in foreign stocks and changes in taxation introduced in the 2024 budget, multi-asset funds can be an attractive proposition.

The Securities and Exchange Board of India (Sebi) classification rules require multi-asset funds to allot a minimum of 10% in equity, debt, and gold each while leaving it up to the fund manager to decide the maximum exposure.

Some, but not all, multi-asset funds also invest in international stocks.

Fund-of-funds (FoFs), which have baskets of domestic, overseas, and commodity exchange-traded funds (ETFs), also function a lot like multi-asset funds. An FoF can add an additional layer of expense capped at a maximum of 2x the expense ratio. That makes even an FoF investing in low-cost ETFs attractive.

The idea behind multi-asset FoFs or funds is that a fund manager can deliver alpha by allocating money across assets and rebalancing your portfolio. Instead of buying separate funds and switching between them or buying different funds through one's distributor/advisor, one can invest in just a few diversified funds, such as multi-asset funds, and cut the need for self-review or rebalancing.

When equities get overvalued, a good multi-asset manager will switch to debt or gold. The argument is similar for international equities. While there are dedicated overseas feeder funds and ETFs, you can take the same exposure via a multi-asset fund that allocates to the US or other markets.

The advantage of this approach is tax efficiency. Rebalancing within a fund does not attract tax, unlike selling one mutual fund to buy another, which can invite capital gains tax—20% for short-term capital gains (STCG) and 12.5% for long-term capital gains (LTCG).