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Are Multi-Asset Funds For You?   Apr 12, 2018


MULTI-ASSET

I remember the first time I failed was in the 6th grade. The subject was Mathematics. And I cried and berated myself for days.

My mother consoled me and after a few days asked me if I knew the reason for failing this subject.

After much thought, I realised my approach to studying the subject was ineffective.

Sure, History and Geography were my favourite subjects and so I had spent more time studying these, while I was over confident about Math.

Being a mother, she empathised with me: “It’s ok! This is life and there will be ups and downs. You cannot hold on to this failure life-long. Learn from your mistakes and prepare well for the next semester.”

This made complete sense to me. I worked harder the next semester. I planned my study schedule so that every subject got equal time. Eventually, I did clear the semester with a decent score.

I am sure you’re aware that Balance is the key.

And the same rule applies to your investments. Each asset class (equity, gold and debt) has its own rollercoaster ride.

At times, when equities are at their peak, the debt class is way below your expectations.

Often investors concentrate on one asset class say equity. They either look at the asset’s immediate past performance or assume the fancy returns it may create in near future.

But do you think it is an ideal way to invest?
Of course not!

Balance is crucial for your portfolio too.

And, the easiest way to build a balanced portfolio is to opt for a multi asset fund. Let’s look at what this type of fund can offer you.

What Is A Multi Asset Fund?

A Multi Asset Fund invests in different asset classes such as equity, debt, and gold at the same time. They invest in different asset classes/schemes following the predetermined limits of allocation to each of them.

Some multi asset funds directly invest in equity stocks, debt instruments, and gold units, while some funds invest indirectly in these asset classes.

Multi asset funds are at times also named as Fund of Fund Schemes.

For instance, Axis Triple Advantage Fund seeks to invest in diversified portfolio of Equity and Equity related instruments, Fixed Income Instruments, & Gold Exchange Traded Funds.

Quantum Multi Asset Fund, on the other hand, aims to invest investing in a combined portfolio of equity, debt/money markets, and Gold schemes of Quantum Mutual Fund itself.

But the basic purpose of investing in such funds is to diversify investments in assets classes that share very low positive correlation. Lower positive correlation between two asset classes indicates that they are unlikely to move in the same direction.

It has been observed in the past that gold and equity share a low correlation with each other. And, hence, having these two asset classes in your portfolio can help diversify it better.

While debt is considered safer than equities; equities can generate superior returns. And Including gold would improve the diversification of your portfolio.

Wondering if multi asset fund is for you, then read on…

Is Multi Asset Fund For You?

If you agree on at least 3 of the 4 reasons listed below, a multi asset fund is for you:

1. Aiming to build a diversified portfolio

If you are looking for portfolio diversification, then multi asset fund is the solution.

A Multi Asset Allocation Fund is a type of Hybrid Scheme where investments are made in different asset classes. Such funds can invest in asset classes like debt & money market instruments, equity & equity related instruments, and gold.

Exposure to different and least co-related securities offers the benefit of diversification and reduce the overall risk of the portfolio.

As you would know, debt instruments provide the safety and stability of regular income from coupon payments.

Equities are comparatively risky, but potentially can earn better inflation-adjusted returns (also known as real rate of returns) for you over longer time frames.

Gold as mentioned before, has a low or negative correlation with most other asset classes. It acts as a safe haven during economic uncertainties and hedge against inflation.

Hence, the fund manager of multi asset fund has flexibility to change fund’s asset allocation if needed.

2. Reduce risk

A well-diversified portfolio is exposed to lower investment risk. The growth prospects are no longer limited to one risky security.

Moreover, risk is distributed with the basket of both risky and non-risky securities (equity, debt, gold, and real estate).

Hence, if you are a conservative investor or at the moment do not wish to assume high risk, then multi asset funds will be apt for you.

3. You want ease of maintaining track record of all asset classes

You have the ease of looking at the performance of several assets in one statement, rather than looking at multiple statements.

If you invest in 10 mutual fund schemes, you need to keep a track of account statement all the 10 funds. Many investors abhor this out of fear of managing several investment documents.

And if you too wish to avoid maintaining too many records, opt for a multi asset fund.

This makes tracking of the portfolio’s performance easy.

4. Wish to re-balance your portfolio

Consider timing a single asset class’s market. Investors who try to actively time the equity markets can testify to its volatility. Timing the market to create alpha can prove hazardous to your wealth and health.

Now imagine timing the performance and market movement across the asset classes. Investing without stress is not hard to achieve, if you eliminate timing the market, or markets, and implement a disciplined strategy. More than ‘timing’, the ‘time in the market’ is often of great consequence.

Multi asset funds rebalance the portfolio at regular intervals based on the performance and the outlook of each underlying assets. This, in turn, gives investors freedom from monitoring markets.

You no longer have to re-balance your portfolio. Professional fund managers would do the re-balancing act on your behalf.

Before you zero down your investments, understand the past performance of some of the funds as highlighted below.

How have multi-asset funds fared?

Scheme Name 1 Year 2 Year 3 Year Since Inception
Quantum Equity FoF Fund-Direct Plan 1.42 27.00 19.45 30.96
Franklin India Life Stage FOFs-20 0.97 18.96 13.21 39.69
Aditya Birla SL Asset Allocator Multi FoF 1.04 17.10 12.21 33.68
Franklin India Life Stage FOFs-30 0.85 15.03 10.40 23.07
IDFC Asset Alloc-Aggr 1.06 15.90 10.40 13.99
Kotak Asset Allocator Fund 0.65 13.53 10.39 58.05
Franklin India Life Stage FOFs-40 0.76 12.64 9.00 16.73
Franklin India Dynamic PE Ratio FOFs 0.76 13.05 8.87 32.95
IDFC Asset Alloc-Mod 0.83 12.06 8.64 11.25
Franklin India Life Stage FOFs-50 0.69 10.94 8.44 11.31
CRISIL Balanced Fund - Aggressive Index 1.41 17.98 11.50 17.23
Performance as on April 11, 2018
(Source: PersonalFN Research, AceMF)


Multi asset funds have delivered satisfactory returns for its investors. Most of the funds have outperformed the benchmark index CRISIL Balanced Fund - Aggressive Index over the 1, 2 and 3 years’ time frame.

But before you decide onto the multi asset funds, we would like to highlight a striking comparison between multi asset funds and balanced funds.

You can also avail for PersonalFN’s Mutual Fund Portfolio Service here.

Comparison Between Multi Asset And Aggressive Hybrid Funds

If your aim is diversification and ready to take risk with equities, then the Aggressive Hybrid Fund category can also be a good option for you to invest.

They aim to build a portfolio of different asset classes with a skewed allocation to equities (in the range of 65-80% of total assets), which can be worthwhile for a longer investment horizon.

As per SEBI’s new scheme categorisation rule, balanced funds will be termed as Aggressive Hybrid Funds/ Balanced Hybrid under Hybrid category.

Below is the comparison of fund performance over a period:

Multi Asset Funds vs. Aggressive Hybrid Funds

Particulars 1 Year(%) 2 Year(%) 3 Year(%) Since Inception(%)
Average Returns - Multi Asset Funds 0.90 15.62 11.10 27.17
Average Returns - Hybrid Equity 1.34 23.95 18.98 35.13
CRISIL Balanced Fund - Aggressive Index 1.41 17.98 11.50 17.23
Performance as on April 11, 2018
(Source: PersonalFN Research, ACE MF)


Clearly the Aggressive Hybrid Funds have managed to clock better returns for investors. Moreover, Aggressive Hybrid Funds enjoys comparatively favourable tax status (being classified as equity-oriented).

P.S: Read the entire guide on scheme name change here.

To Conclude:

Multi asset funds are best suited for investors looking for diversification and or to re-balance their portfolio.

However, PersonalFN is of the view that from a taxation angle, the debt-oriented classification is a bit restraining. 

Nonetheless multi asset funds come with benefits as enunciated above.

Going back to my mom’s lesson, the art of balancing is all you need to have in every area of your life - whether it is work-life balance or balance in your financial portfolios.

The choice is yours.

Happy Investing!

Author: Rajani Vyas


DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014
 

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

"Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI."


Disciplinary history

There are no outstanding litigations against the Company, it subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;
  2. PersonalFN Insurance Services India Pvt Ltd. ;
  3. Equitymaster Agora Research Private Limited;
  4. Common Sense Living Private Limited;
  5. Quantum Advisors Private Limited;
  6. Quantum Asset Management Company Private Limited;
  7. HelpYourNGO Private Limited;
  8. HelpYourNGO Foundation;
  9. Natural Streets for Performing Arts Foundation;
  10. Primary Real Estate Advisors Private Limited;
  11. Rahul Goel;
  12. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
 

  1. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company , except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF.
  2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
  3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices

Disclosure with regard to receipt of Compensation

  1. Neither QIS or it's Associates have received compensation from the subject Company in the past twelve months.
  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months except from Axis Bank Limited under a service agreement.
  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report
     

General disclosure

  1. The Research Analyst has not served as an officer, director or employee of the subject Company.
  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.
     

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited I      CIN: U65990MH1989PTC054667
Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021  I  Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400 021.
Email: info@personalfn.com I      Website: www.personalfn.com I        Tel.: 022 61361200 I        Fax.: 022 61361222
 

SEBI-registered Investment Adviser. Registration No. INA000000680,
SEBI (Investment Advisers) Regulation, 2013



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