Multi Asset Allocation Mutual Fund – Concept, Compatibility, Advantages, Disadvantages & more

This article will introduce you to one of the best investment medium – Multi Asset Allocation Mutual Funds.

On blogs, vlogs, or news channels, you might have heard about plenty of investment plans.

Possibly, you might have come across the investment medium or plan – Multi-Asset Allocation Mutual Fund.

Curiosity to know more about the plan is being smart, and we have every medium and information to feed your curiosity.

You can weigh this plan and every aspect related to it, in order to figure out its compatibility before investing in it.

Through this article, we’ve shared a brief discussion with you on one of the very valuable investment schemes, MAA Mutual Fund. 

What is Multi Asset Allocation Mutual Fund?

An investment that comprises a group or a mix of assets (e.g., bonds, cash, or equity) is called Multi-Asset Allocation Mutual Funds. 

Usually, these funds consist of multiple asset classes instead of one. All these asset classes are pooled in a single portfolio. 

The distribution of these asset classes totally depend upon the individual investor. 

Apart from that, if we talk about the objective of these MAA Mutual Funds, without a doubt many of you are going to like this investment plan. 

This investment plan offers its investors a steady income along with a capital appreciation advantage by investing in diverse asset classes. 

For instance, MAA Mutual Funds mainly invest in debt instruments, equity and equity-oriented schemes, gold and gold-oriented instruments to generate a steady income out of it. 

Usually, Multi-Asset Allocation Mutual Funds are categorized into two forms-

1. Risk-Tolerance Funds
2. Target-Date Funds

Risk-Tolerance Funds initiate investment on the base of the investor’s risk appetite.

For instance, an investor with a high-risk appetite would prefer to invest in equities in a good amount.

But investors with lower risk-appetite would prefer to invest more in assets that generate fixed-income. 

If an investor has set a goal that he/she wants to achieve in a particular time-horizon, the assets are allocated accordingly. Such funds are known as Target-Date Funds. 

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Should you invest in Multi Asset Allocation Fund?

No matter whatever the investment plan you choose. But one thing is very certain that you shouldn’t proceed until you are confident in your decision. 

Before you dive into any investment plan, you should first come up with the best investment framework.

A conservative approach, strategic viewpoint, and a very clear purpose of investment can help you achieve your goal. 

If we talk about whether you should invest in Multi asset-allocation funds or not, then, of course, it depends upon your understanding and core objective. 

These funds invest in multiple asset classes, such as gold, debt, commodities, agriculture, metals, etc. 

As per the SEBI guidelines, a Multi-Asset Allocation Mutual fund should have at least 10% exposure in equity, debt, and gold assets. 

So make sure you’re aware of this critical fact. If you only want to invest in debt or equities, you may resist going with this option. 

But it makes the portfolio quite profitable. For instance, by diversifying assets, a fund manager (who handles Multi-Asset Allocation Mutual Funds) can reduce the volatility impact on the portfolio. 

Though, the returns aren’t higher if compared with equities that provide you a higher return. Still, people choose MAA mutual funds because of their risk-adjusted return offering.  

Find details of other Types of Funds here

Benefits of Multi Asset Allocation Funds

The quality features of Multi-Asset Allocation Mutual Funds can prove to be quite advantageous due to the following reasons stated below-

Diversification 

Under Multi-asset allocation funds, the investor or a fund house manager expose their portfolio to multiple asset classes. Each asset class carries varying risk and reward ratio. 

By doing this, investors reduce the risk level and create a steady income source. It makes the multi-asset allocation funds a highly effective approach where you can confidently park your money.  

Attractive returns 

Investment in equities can be highly risky. But if you invest in MAA mutual funds, you capture interest quite similar to the equities at less or moderate risk. 

The big reason is that these assets invest in varying asset classes with different risk qualities. It balances off the overall portfolio and delivers you a higher return at minimal risk.

Similarly, it captures a higher return for the investors. 

Rebalancing Portfolio

Rebalancing a portfolio is a very crucial factor. Through rebalancing, investors can notice attractive chances that derive higher returns and much more. 

For instance, during the up and downtrend, re-balancing provides a decent idea to the trader whether it’s the high time to sell an asset or purchase a new one.

It makes the diversification strategy more robust. 

However, for an individual investor, re-balancing a portfolio containing multiple asset classes can prove to be a hectic job. 

That’s why Multi-Asset Allocation Mutual Funds can appear to be an attractive option to you. The automatic rebalancing of a portfolio provides investors a way out to this problem. 

It trims down the market volatility impact upon the MAA Mutual Funds, making it a way better option. 

Investors have no longer need to manually shift the assets as the fund managers of MAA Mutual funds handle everything for you. 

Ready-Made Portfolio 

It’s quite interesting to hear, but Multi-Asset Allocation Mutual Funds come with these benefits. 

Investors have no longer need to go through an extensive thought process while constructing a portfolio. Let it be done by the fund house’s team of experts. 

You just pick the best fund that meets your desire, and the rest of the things will be handled by your fund manager. In this way, you also save cost.

For instance, if you want to create a profitable portfolio, it can cost you a lot as you’ll first have to seek experts’ advice. MAA mutual fund eliminates such requirements completely.  

The in-house experts of a fund house build a well-planned portfolio, and you enjoy ready-made solutions. 

Unrestrained Entry and Exit

Many fund houses charge no fees on entry and exit in these funds. It put forward another big advantage of investment in MAA mutual funds. 

Similarly, investors who want to meet their short term goals can find MAA mutual funds a way better option.

Though, investors who hold a decent knowledge in asset allocation can expect huge from these funds.  

Drawbacks of Multi Asset Allocation Mutual Funds

The traditional Multi-Asset Allocation Mutual Funds generally invest in two types of assets- debt and equity. It makes these funds relatively less attractive for any investor. 

Though, modern funds apart from equities and debt allow you to invest in gold, commodities, and metals too.

Still, there’re few shortcomings of MAA mutual funds about which people discuss a lot. Let’s have a look.

Taxation 

The taxation in Multi-Asset Allocation Mutual Funds can be two-fold. Many times, investors invite tax similar to debt or equity. 

It happens as not all the asset classes within a portfolio are mandated as equities. Most mutual fund schemes investment consists of 65% equities fund only. 

Though, the percentage can go lesser based on the market behavior, fund managers’ strategies, and investor’s choice. It also implies that many times you may not invite equity-type tax. 

But if your investment in these funds is taxed like equities, then, of course, this can prove to be a little unfair deal.  

For example, the portfolio comprises 65% of equities and 45% of debt funds. Since the equities fraction is higher, it point out that your portfolio might be taxed like equities. 

It shows us a significant drawback of this investment option as you’ll be paying higher tax for the remaining 45% debt investment. 

MAA mutual funds may not necessarily be diversified. 

In many cases, the investor or fund manager doesn’t diversify the portfolio. Instead of it, they try to hold the investment. Though, there can be plenty of reasons behind why investors do this. 

Many investors have equities due to their urge to capture higher returns. For instance, Axis Triple Advantage seeks investors to invest 65% in its equities and hold it for a few months. 

Since investors here see a higher return from this investment option, they are ready to do the same. It means that the MAA mutual funds may not necessarily allocate their asset from time to time. 

That’s why often; Multi-Asset Allocation Mutual Funds begin to appear like of equity-oriented hybrid funds.  

Lack of Flexibility 

It’s the major drawback of Multi-Asset Allocation Mutual Funds. These funds are indeed pre-defined funds. 

That’s why the assets within these funds may not satisfy the individual’s choice. Meanwhile, if an individual investor wants to alter the asset, they can’t. 

Expense Ratio is High

Multi-Asset Allocation Mutual Funds are undoubtedly popular among investors. But owing to this big reason, many investors are charging high, which raises the expense ratio of these investments.

However, it isn’t the only reason. Since these funds invest in multiple assets at a large scale, so the tax and further changes are usual to come.

Find details of all types of Debt Funds here

Multi-Asset Allocation Mutual Fund – Conclusion

If you want to invest in multiple assets through a single portal, no wonder Multi-Asset Allocation Mutual Funds can prove to be an ideal option. These mutual funds invest in a group of assets. 

Though, the rules and the working style that this investment plan follows aren’t always reliable. Many times, MAA Mutual Funds appear to be a little mind-boggling. 

Such as when fund managers invest solely in equities and hold them for the long term. It makes these returns quite similar to the equity-oriented hybrid returns. 

Still, these funds prove to be an attractive option for investors who expect higher returns from their investment. That’s why, at few points, MAA mutual funds turn out to be a great option.  

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Check out all types of Hybrid Funds here

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