Best Multi-Asset Allocation Funds to Invest in 2021

Being prepared for uncertainties to reduce the impact of volatility on your overall portfolio returns is an important aspect of investment. This can be achieved through diversification across asset class. As stated by Benjamin Graham,"There is a close logical connection between the concept of a safety margin and the principle of diversification."

Different asset classes react differently to the varying macro-economic situation, sometimes equities outperform and other times, it could be debt or gold. So when you invest across multiple asset classes, the impact of any sharp negative movement in one asset class will be mitigated by the likely rise in other asset classes. It is noteworthy that all asset classes do not always move in the same direction at the same time.

Therefore by diversifying across multiple asset classes, your portfolio will be able to preserve the value of your capital across market phases more effectively as well as earn decent returns compared to when you invest in just one asset class.

Multi-Asset Allocation Fund is an easy and convenient way to get tactical allocation across multiple asset classes.

Graph: Performance of different asset classes vary over the years

(Source: ACE MF, PersonalFN Research)

What are Multi-Asset Allocation Funds?

Multi-Asset Allocation Funds are mandated to invest in at least three asset classes with a minimum allocation of at least 10% in each. The investment objective of Multi-Asset Allocation Fund is to generate modest capital appreciation while trying to reduce overall risk to the portfolio from a combined portfolio of low-correlation assets (usually equity, debt, and gold).

Fund managers of multi-asset allocation fund have the flexibility to dynamically allocate investments in different asset classes by looking at a variety of factors such as:

- Price/Earnings Ratio relative to historical averages;

- Interest rate outlook

- Macroeconomic factors prevailing in India and globally

- The quality of securities

The low correlation among assets enables multi-asset allocation funds to protect the downside risk during uncertain economic conditions and volatile markets and generate better risk-adjusted returns. Do note that most multi-asset allocation funds follow a predetermined limit of allocation (minimum and maximum) to invest in equity, debt, and gold to maintain the preferred tax treatment.

A Multi-Asset Fund is suitable for investors seeking long-term capital appreciation, who have a moderately high-risk appetite and an investment time horizon of 3 to 5 years.

Table 1: Performance scorecard of Multi-Asset Allocation Funds

Scheme Name Absolute (%) CAGR (%)
1 Year 2 Years 3 Years 5 Years 7 Years
Quant Multi Asset Fund 75.65 21.64 15.80 12.02 10.81
Axis Triple Advantage Fund 48.62 17.59 13.22 12.41 11.45
HDFC Multi-Asset Fund 51.46 13.74 10.63 10.54 10.70
ICICI Pru Multi-Asset Fund 57.92 11.85 10.31 14.48 13.61
Essel 3 in 1 Fund 47.21 11.31 9.62 9.18 9.28
SBI Multi Asset Allocation Fund 26.91 11.72 9.30 9.67 10.81
UTI Multi Asset Fund 38.05 9.57 7.45 9.34 8.68
S&P BSE 500 76.62 13.11 11.50 13.98 13.06
Data as on March 31, 2021
(Source: ACE MF)
*Please note, this table only represents the best performing Multi-Asset Allocation Fund based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for an indicative purpose. Speak to your investment advisor for further assistance before investing.

Each Multi-asset allocation fund differs from the other in terms of their respective allocation towards a particular asset class; some are equity-oriented, while others are debt-oriented. Therefore, the performance of funds within the category may significantly vary from one another. If you are a conservative investor, you could opt for debt-oriented multi-asset allocation funds offered by various mutual fund houses.

Apart from actively managed multi-asset allocation funds, you, the investor, can choose from funds that invest indirectly in different asset classes, i.e. through the Fund of fund mode - a low cost alternative to gain exposure across asset classes.

Table 2: How have Multi-Asset Allocation Fund of Fund fared?

Scheme Name Absolute (%) CAGR (%)
1 Year 2 Years 3 Years 5 Years 7 Years
ICICI Pru Asset Allocator Fund(FOF) 47.68 13.68 13.20 13.36 12.90
Aditya Birla SL Asset Allocator FoF 48.00 14.84 10.93 12.44 --
HDFC Dynamic PE Ratio FOF 50.64 11.45 10.51 12.91 11.20
Quantum Multi Asset FOFs 26.87 9.71 9.09 9.53 9.27
Franklin India Life Stage FOFs-20 58.22 9.56 8.48 10.72 12.22
Data as on March 31, 2021
(Source: ACE MF)
*Please note, this table only represents the best performing Multi-Asset Allocation Fund of Fund based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for an indicative purpose. Speak to your investment advisor for further assistance before investing.

​Here are the benefits of investing in a Multi-Asset Fund:

  1. Facilitates diversification across asset classes, which reduces risk and optimise gains

  2. Enables timely portfolio rebalancing, based on the performance and the outlook of each underlying assets by a professional fund manager

  3. Provides relief from timing and monitoring asset markets

  4. Benefit from the strong research capabilities of a fund management team

  5. The cost of investing is reduced

  6. Makes portfolio tracking easy

Ensure that you select a worthy fund based on its quantitative as well as qualitative parameters.

Best Multi-Asset Allocation Fund to invest in 2021:

Some of the best performing Multi-Asset Allocation fund based on our analysis and research at PersonalFN are as follows:

Here are the facets you need to look into to select the best Multi-Asset Allocation Fund:

Quantitative Parameters:

Before investing in a multi-asset allocation fund, assess your risk profile, investment objective and investment horizon to select a suitable scheme (equity-oriented multi-asset fund or debt-oriented multi-asset fund).

Then analyse the fund's consistency in performance across various market periods (bull and bear market phases) compared to the benchmark and category peers. While all funds may perform well during the bull phase, an important parameter when selecting a Multi-Asset Allocation Fund is to determine its ability to manage the downside risk during tough market conditions by how it tactically allocates assets across equity, debt, gold, etc.

Determine whether the fund has rewarded its investors well for the risk they have taken using risk-reward ratios like Sharpe Ratio, Sortino Ratio, and Standard Deviation over a 3-year period.

When shortlisting funds for your portfolio, give preference to those funds that stand strong on risk-reward parameters.

Qualitative Parameters:

Qualitative parameters are often overlooked though they are a vital aspect in the selection process. It involves determining the quality of the portfolio and the efficiency of fund manager/house.

The fund house should have a significant performance record and must follow robust investment processes with adequate risk management systems in place.

And because the fund's performance is directly dependent on the ability of its fund manager, check the qualification and experience of the fund manager and the track record of the other schemes they manage.

Look at the fund's portfolio for how well diversified it is across asset classes as well as the securities within those asset classes. Remember that a concentrated portfolio can expose you, the investor, to higher risk.

A multi-asset fund that has an equity-biased portfolio can be risky. The risk will intensify further if the fund has higher allocation to the stocks in mid-cap and small-cap segment. Carefully choose a scheme that aligns with your risk profile.

For the debt portion of the portfolio, check the credit profile of the underlying securities. The fund should hold a predominant allocation to high quality papers to reduce the credit risk. Moreover, the fund should be well placed to rebalance the portfolio depending on the interest rate outlook.

Also ensure that the fund is adequately diversified in gold (or any other asset class as per the scheme's investment mandate) depending on the economic outlook.

Additionally, keep a tab on the churning rate of the securities in the portfolio because a high churning rate can make the portfolio prone to volatility and negatively impact the overall returns of the scheme. Analyse the portfolio's turnover ratio and expense ratio to assess how efficiently the fund controls the churning and limits the expenses.

Yes, we know that the above list is a lot for an average investor to look at. It involves number crunching and much of the data is not easily available in one place. But if you do need to narrow down on the top funds, these factors are of utmost importance.

Watch this short video on selecting mutual fund schemes:


At PersonalFN, we select and recommend mutual funds based on quantitative and qualitative parameters using our S.M.A.R.T Score Matrix:

  • S - Systems and Processes

  • M - Market Cycle Performance

  • A - Asset Management Style

  • R - Risk-Reward Ratios

  • T - Performance Track Record

The outlook Multi-Asset Allocation Fund in 2021:

Asset allocation is the cornerstone of successful investing. When asset allocation is wisely defined and followed, it serves as an investment strategy that attempts to balance risk-reward by adjusting the risk proportion of each asset in the investment portfolio.

When equities witness a correction or volatility, it is the other asset classes viz. debt and gold that would help the investment portfolio clock net positive returns. Hence, diversifying investments across asset classes viz. equity, debt, gold and even holding optimal cash is necessary.

Amid the sharp rally in the equity market, gold has somewhat lost sheen (from its all-time highs of 2020) though it will continue to be an effective portfolio diversifier. Remember it is a safe haven and commands a store of value. Meanwhile, the debt component will add the much needed stability to your portfolio.

Though the equity market could be highly volatile in the near term, it has the potential to outperform other asset classes in the long term. Moreover, debt and gold will continue to protect investors against rising inflation and support growth amidst uncertainties if the equity market turns volatile again.

So if you are a first time investor who is looking for capital appreciation at a risk lower than pure equity funds you can consider investing worthy multi-asset allocation fund. The category is suitable for investors who find it difficult to rebalance their portfolio on their own depending on the changing market conditions.

PS: If you are looking for quality mutual fund schemes, I recommend subscribing to PersonalFN's premium research service, FundSelect.

PersonalFN recommendations go through our stringent process that assesses both quantitative and qualitative parameters, providing you with Buy, Hold, and Sell recommendations on equity and debt mutual fund schemes.

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Warm Regards,
Divya Grover
Research Analyst

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