Are multi-asset funds the right product in a soaring market?

Fund houses have launched multi-asset funds that invest across different asset classes, but their allocations vary

- Jash Kriplani

Diversification is the only free lunch," Nobel Prize-winning economist Harry Markowitz has said. But how do you define diversification? How many asset classes should you invest in and in what proportion? Domestic mutual funds seem to be thinking hard about this question. Several fund houses have come up with a solution by renewing their focus on multi-asset funds in recent months.

Edelweiss Mutual Fund (MF), DSP MF, Kotak MF, WhiteOak Capital MF have all recently launched their new fund offers. More are in the works. To be sure, multi-asset funds have been around in the country for at least 10 years.

Multi-asset funds are allowed to invest in various asset classes—equity, debt, gold, silver, commodities, international equities, futures & options, real estate investment trusts, infrastructure investment trusts, etc. They are seen as a one-stop solution for every investor’s asset allocation needs. But not all multi- asset funds are the same. Some invest in international equities; others do not. Some tend to keep their equity exposure low; some can take it much higher. Also, every multi-asset fund is taxed differently.

Here is what you need to know about these funds.

Past performance

The top-five multi asset funds in terms of assets have delivered three-year rolling returns of 12% on an average between 1 January 2016 and 14 September 2023. These funds have delivered a maximum of 30% three-year returns; the minimum is -2.4% (see graphic). Only those funds that have been in existence for more than five years have been considered for calculating the returns.

A well-managed multi-asset fund can help investors reduce overall volatility on their investments. The funds analysed showed a standard deviation of 5.7% on an average. Standard deviation is a measurement of volatility.