What are Multi-Asset Funds? | Choosing the right Multi-Asset Fund | ET Money

you know if you consult a nutritionist and ask about what you should ideally be eating every day more often than not you'll be advised to have a balanced diet you need a good share of carbs and protein but a little bit of sugar is not bad either similarly it said that in your investment portfolio diversification is a good strategy to follow and that brings us to multi-asset funds my first guest today will tell you everything that you need to know about it santosh navlani chief operating officer of et money is joining us thank you so much santosh as always for taking the time good evening to you let's start with the most basic question what are multi-asset funds so i love the analogy alex you gave about the balanced diet i think everybody wants one but rarely people get one but no unfortunately in mutual funds or world of investments is not as tough and i know the moment you get to know how to go and buy it uh so uh typically individual investors like you and me uh have only a few asset classes at our disposal equity debt gold real estate maybe crypto these days uh as well uh and and one of the difficult part about investments is when to buy what asset class and how much proportion and if you want to really outsource this job to a fund manager and actually go and uh aim for steady returns balanced returns in every kind of market uh short term medium term long term then multi asset funds are your best bet they actually give you exposure to three asset classes into one fund uh so i typically call them like three in one fund uh so to speak it's like you actually have domestic equity allocation in them you have gold you have debt and the fund manager depending on the market scenario actually either increases unlockages specific asset class or reduces or basically maintains a minimum allocation each of them and creates a very steady uh and balanced returns experience for people uh as per sebi's definition of multi-asset funds in the country uh any fund which actually maintains at least 10 personal location to each of the asset class of equity debt and gold is classified as multi-asset fund uh so you typically find a lot of funds in the in the space who actually are sometimes running more of quasi i know aggressive hybrid fund by having a lot of portion towards equity uh in all market scenarios that may not be good but so to speak people have allocations possible in all these asset classes into one fund called multi-asset just those three right fund managers have taken the liberty to expand that to other assets as well uh could you also take us through some of the other assets that have been invested in and the forms that they invested in yeah so some of the some of the funds i think sbi and nippon the respective multi-asset funds actually have interestingly allocation to do international equity as an asset class as well which is amazing uh in in that sense people actually uh get benefit of almost four in one asset class uh they're actually three but the version of equity can be domestic international as well so nepal actually has about 20 location towards international equities in their multi-asset fund sbi has small location there are some assets some fund managers actually having interestingly invites and reits uh as uh replacement of fixed income or real estate uh as an asset class as well uh so they're interesting uh kind of fund offerings to go for but ultimately one looks for steady returns and it can be combination of three asset classes or four asset classes but the result is going to be same uh more of the steady returns in all kind of market uh market scenarios interest there is one more fund uh in the marketplace uh by by mother roosevelt mutual fund company where they actually have this interesting uh a passive way of building a multi-asset portfolio where they have two options for people an aggressive fund of fund and a conservative fund or fund they are not classified as multi-asset funds but they actually are multi-asset fund in scenario where they allocate fixed uh static allocation towards uh nifty 500 index funds s p 500 index fund of u.s uh domestic uh g-sec uh uh one for fixed income and uh ten percent location to gold as well uh as of now the international investments are stopped so this fund is not accepting allocations but uh it actually is a great replacement for multi-asset fund as well why would you use a multi-asset i think to a certain extent we have spoken about the use case but why would an individual look at a multi-asset fund what place would it hold in an individual's portfolio yeah so alex i think all of us are running multi-asset portfolios in our own monies if we go and introspect deeper all of us uh or most of us would have some allocation towards equity and either in the form of direct equities or or mutual funds uh we will have a location towards fixed income via fixed deposits bonds or maybe debt mutual funds will have a location to gold by having physical gold uh in our homes or maybe digital gold or digital or gold mutual funds as we can call them and we'll probably have a location towards real estate as well maybe in the form of reits or having physical land or our houses the fact is we are all running multi asset portfolios unknowingly just that when you bring some structure to it uh it it actually can do much better job to your investment portfolio than that and multi-asset funds actually do that job of organizing your investments into different classes in the right strategy and there is a reason that you should have this approach or diversified balance portfolio always in life because not all asset classes rise to get involved together in fact equity uh is negatively correlated with gold and debt or rather debt and gold are negatively correlated to equities in that sense so when equity typically is in bull phase chances are very high gold is not rising along with equity uh when equity is in a in a kind of bust phase or it's falling like a crazy market as we saw in last few days uh you would probably see gold outperforming in fact if you see last six month returns uh just as an example uh nifty has given a negative return of about six percentage points if i can say that and uh uh gold probably has given about ten percent uh a positive return so we basically have seen in reality right now shaping up where gold actually has given a positive return where equity is not so typically when uh when you access the reality that all asset classes are not possibly correlated uh some of them are negatively correlated and if you want a steady experience where in your portfolio there is somebody who's giving you returns while somebody is giving stability or somebody is giving you returns while other other asset classes falling then multi-asset funds actually do that job pretty well for you and just to elucidate your point over the last couple of years when you've had a bull run in global equities because of easy monetary policy you've had yields that have been subdued and therefore fixed income has not given you the kind of returns maybe towards the start when yields were falling that was good but by and large debt funds have not done as well as they've done in the past and on the other hand you had equity that has outperformed but why don't we roll back and take a longer view of things santosh over the longer period would you still say that multi asset has done its job has outperformed so uh alex as well india is just seeing a kind of you know entry or other interest in this category i'm sure products will get better but if you look at the objective behind these funds uh it's actually quite noble uh they are neither equity funds nor they are debt funds so what does it mean like you know debt funds typically will only protect your purchasing power if not just beat inflation by slight amount uh equity as an asset class gives you long-term wealth creation potential where uh you actually are trumping an inflation by uh almost double digit return in that sense or a very high single digit return in the long run uh but when equity comes with a lot of ups and downs and that basically has a steady uh kind of protection of purchasing power at max what does multi-asset do they exactly fall in between by combining uh multiple assets into one fund they actually hope to or rather aim to give you uh somewhere in exactly middle of equity and that kind of returns so uh if you really want and if you really want uh returns which you want like you are looking for debt uh plus plus returns but not at the cost of ups and downs of equity then multi-asset funds are pretty good job for you a pretty good they do pretty good job for that aspect so if you uh it's basically somebody expecting or prioritizing a steady return then then uh and and deploratizing ups and downs it that come along and equity returns and uh again we can take a step back as you mentioned for over the long run uh uh and if we've spoken about this in in the past as well if you look at 2008 global financial crisis uh it didn't matter whether you had the best equity fund of the best stock what mattered whether you had gold uh in the next subsequent years in your portfolio when gold actually had a secular bull run for almost three four years together and it it gave a phenomenal return to people who investors involved uh it's the same thing happening in the uh 2020 as well where while equity markets actually were probably flatish uh or very small single-digit returns depending on the fund you bought but gold as an asset class actually gave you almost 20 return in 2020 why because when the when people when when the markets were falling like crazy in february in march gold actually was became a safe heaven and a hedge for many of the many of the people as as a you know asset of last resort and gold actually gave very good return so what happens is you would not know as an investor which asset class is actually going to bear the brunt of a bull run in the end or what kind of asset class is going to certainly certain disinterest and being at the mercy of an asset class to give returns for your portfolio in in real life you you are better off by having a diversified approach to uh uh your investments and multi-asset funds can do a good job though you can build your own multi-asset strategy and turn it into a very strategic manner on a organized manner and probably get better returns for yourself than multi-asset funds as well okay i get that if but if you were to say that you are going to utilize multi-asset funds in your overall in your overall strategy we've often talked about layering your investment portfolio on the equity side you're talking about the core versus a satellite allocation right but in this case because you have allocation to multiple assets strategically what part of your portfolio would it fill would it be the core of your portfolio so given the way multi-asset funds are run in the country i wouldn't really go and say that they should become core part of a portfolio uh alex uh while the intent is right uh uh from a regulatory structure standpoint that provide an option to investors there at least 10 percent of the assets are invested in uh in you know in each of the as a class of equity that in gold and maybe international as well what happens is the moment you run these funds as uh you know focused on one asset class of equity with uh bias towards equity all the time they start giving you uh more or less same kind of ups and downs experience for investors and if gold is always just lying 10 then you are not really buying a multi portfolio you're just basically uh allocating some portion of your money uh to uh to kind of you know as a currency risk a hedge again currency rates can hedge against inflation kind of stuff so they may not be uh at a state where you can actually look at them as a poor part of your portfolio one can look at that aspect as a way that if you want to locate five percent of your portfolio to gold instead of buying gold you may be allocating like some percentage higher than that as a multi-asset fund and you will get a experience of fixed income equity and gold in in in your portfolio so i wouldn't say core yet but yeah this can become a good strategy for you to really uh protect some part of your portfolio and aim for a steady return in the long run uh when we were discussing what asset classes these mutual funds invest in and since it's an active strategy uh mutual funds have different interpretations of what multi asset should be so therefore from the ex from the perspective of the investor how would you go about choosing the fund uh that you want to invest in and what are the parameters that you need to bear in mind because each one would approach for example equity investing also differently they might have a different strategy right yeah so uh if if typically multi-asset port kind of funds would not be advisable for short-term investments because you wouldn't know which asset class performs better in the short run and because these are typically that taxation structure you may be advised to really invest in at least three years or more horizon so when you look for that kind of longer-term horizon like three plus years maybe sometimes five and seven years for these kind of funds uh you would typically want a diversified equity experience alex and uh one should not be basically by selecting a fund which is being run for equity part is large cap fund all the time or that portion of the fund is actually having aspects towards you know taking more of interest rate risk in the portfolio so if this funds objective is run a study ship uh then you should look for a fund which has a location of equity as more of a flexible uh like flexi cap fund approach to it where you have mix of large cap mid cap small cap without any kind of biases uh you should have allocation towards debt in a way where the fund manager is not taking interest rate risk too much in the portfolio or or rather aiming for even having any amount of greatness in the portfolio so a good diversified approach to fixed income investing and equity investing is what you should look for as a fund and a fund which actually is only allocating to gold as 10 percent in respect of all market scenarios then this basically is not a good one for you because then uh the entire purpose of creating some kind of alpha in your portfolio by uh increasing a location to go the right time or when the uh market mood is is in favor of gold and you're only stuck at 10 in gold then it will not be good experience for you or you may not really get what you hoped for so look for fund which actually is running a very dynamic strategy across all these three asset classes actually allocating uh or you know decreasing uh kind of you know exposure to gold with respect to market conditions will be good enough one of the ways to look at that is compare the annual returns of each of the funds are in the marketplace and see that which fund has at least been able to beat fixed income fixed income return uh in each of the periods or x maximum periods that means uh if if a fund has beaten fixed income returns or debt mutual fund returns in each of the calendar year periods then you can actually expect or hope that this fund is being run as a multi-asset fund and that's one of the those are the three or four checks you would probably look for in selecting a fund mutual fund investments are subject to market risks read all scheme related documents carefully

Channel: ET Money

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Keywords: mutual funds, multi asset funds, best mutual funds, mutual fund, multi asset, sbi multi asset allocation fund, personal finance, trading strategies, nippon india multi asset fund review, multi asset allocation fund, asset allocation portfolio, best multi asset funds in india, best multi asset funds, indian economy, nippon india multi asset fund, stock market news, mutual funds explained, mutual funds investment, best asset allocation strategy, mutual funds for beginners

Id: 4ZxbpS-5ZYQ

Length: 15min 58sec (958 seconds)

Published: Fri Sep 09 2022