Multi-asset funds can serve as core portfolio holding for investors’

Can these replace DIY asset allocation and serve as core of an investment portfolio?

- Shipra Singh [e-mail] NEW DELHI

Multi-asset funds are fast becoming the new favourite among mutual fund investors seeking diversification. The category recorded the highest inflows of ₹8,476 crore in February, according to data from the Association of Mutual Funds in India (Amfi).

In an interaction with Mint, Deepak Shenoy, the chief executive officer of Capitalmind AMC, shares his view on how multi-asset funds work, who they are suitable for and whether investors risk chasing yet another market fad. Edited excerpts from the interview.

Why are investors suddenly flocking to this category? Where do such funds fit in a portfolio?

Multi-asset funds were created for a certain type of investor. These funds invest across equity, fixed income and a third asset class such as commodities. Commodities usually mean gold and silver, but can also include oil, natural gas, copper and other industrial metals.

Because all these assets are traded through financial markets and derivatives, a single product can give exposure to multiple asset classes. The fund manager can decide how much to allocate to each. If one asset class is struggling while another is doing well, the portfolio balances itself.

Historically, investors ignored multi-asset funds when equities were booming because the debt and commodity portions limited upside. Today, the situation is different—equities have been volatile, debt is relatively stable, and commodities such as gold and silver have rallied. That balance is now visible in returns.

Another key advantage is taxation and convenience. If you manage asset allocation yourself, say between equity funds, debt funds and gold ETFs, you must rebalance periodically. Every rebalance may trigger taxes. In a multi-asset fund, the fund manager handles allocation internally, without tax consequences for the investor.