Is this the right time to invest in Multi-Asset Allocation Funds?
Investors should first define their own asset allocation strategy rather than relying solely on fund houses.
I like looking at billboards when traveling, especially the ones about investments, loans, and properties—anything related to finance.
They give me a feel for what’s trending and what businesses sell to investors. As a finance writer, this is one way I can figure out what's happening in the industry.
Today was one of those days.
As markets have been falling over the last six months, I have noticed front-page advertisements in newspapers and billboards about how it’s “always the right time" to invest in multi-asset allocation funds. This got me thinking - are these really "all-weather" funds?
The big word here is ‘asset allocation’.
This is the holy grail of investing that everyone in the finance industry swears by. But what is it, really?
You’ve probably heard the saying, "Don’t put all your eggs in one basket." In investing, this means spreading your money across different asset classes—like equity, debt, gold, real estate, international funds, etc. Asset allocation is simply deciding how much money to put into each of these asset classes based on:
Your risk tolerance
How long do you plan to invest
Your long-term and short-term financial goals
For example, a young investor starting their career with no major financial commitments can afford to take higher risks. So, they might have a higher allocation to equities.
On the other hand, someone close to retirement who needs a steady income will likely have a higher allocation to fixed-income instruments.
Just when you think the world of finance is simple, here comes a choice to take.
There are two approaches to asset allocation:
Dynamic Asset Allocation – This keeps changing based on market conditions. Questions like, "Is this the right time to invest in gold?" or "With markets down, should I increase my equity allocation?" serve dynamic asset allocation.
Strategic (Static) Asset Allocation – This is more set in stone based on one’s financial needs and is reviewed only occasionally (maybe every 1–3 years) to see if it still makes sense.
Both have their pros and cons. If market timing is right, dynamic allocation can be rewarding. For example, someone who increased their equity allocation during the 2020 COVID-19 crash would have seen big gains during the market recovery. But market timing is tricky. Most investors do more harm to their portfolios by trying to time the market.
Where do Multi-Asset Allocation Funds fit In?
These funds invest in multiple asset classes—equity, debt, commodities (gold and silver), and a few in real estate (through REITs), too.
They maintain a minimum allocation to each asset class, but the fund manager will decide how to invest based on market conditions, using models that predict market direction.
But are these the best-performing funds all the time? Not really.
These funds in India are designed for moderate-risk investors. Since they spread money across different assets, they don’t go all-in on one asset class. They may not perform as well as pure equity funds in a rising equity market.
Having said that, in a falling market, their diversification helps limit losses.
For example, in the current market downturn:
Multi-asset allocation funds have fallen only 6%
Meanwhile, Flexi-cap equity funds have dropped by 15%
That’s the trade-off—you may miss out on bigger gains in a bull market, but you also reduce the downside when markets fall.
Should you invest in them?
Not necessarily. When you have your strategic asset allocation in place that suits your requirements, it will mostly take care of your investment needs.
Most of these funds dynamically manage allocation based on market trends, but that may not align with your investment needs or risk tolerance. Never completely outsource your asset allocation to a fund house with a one-size-fits-all approach.
Reasons to consider multi-asset funds:
You’re new to investing or don’t know where to invest
You have a low-risk appetite
You want to minimize downside risk in falling markets
I want to conclude this with a quote from Ray Dalio.
"You should have a strategic asset allocation mix that assumes you don’t know what the future holds."
-Satya Sontanam
The better we understand ourselves, the better our financial decisions will be.
Dividend
Let's say you own a business. The business made a profit of Rs. 10 lakh last year. Out of the profits, you transferred Rs. 6 lakh to your personal account for your personal use. This amount of ₹Rs. 6 lakh is your dividend.
A company listed on the exchanges distributes profits by announcing dividends. You must be that company’s shareholder on a certain date to receive dividends.
A Rs. 6 lakh dividend on a profit of Rs. 10 lakh means
The dividend payout ratio is 60% (6/10)
Retained earnings are Rs. 4 lakh (10-6)
The total dividend you receive is Dividend per share X number of shares you hold.
A company looking to expand its operations could have a zero or very low dividend payout ratio. It could retain all the profits to invest in business expansion or improvement.
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