Invest in a multi-asset allocation fund for a smoother journey

Indian equities may not outperform in 2023 owing to their relatively high valuations.

- Sudipta Mitu

If the global economy goes into a recession, earnings of Indian corporates could also be affected, especially those belonging to export-oriented sectors such as information technology and pharma. Hence, investors who are excessively exposed to equities should consider building a diversified portfolio that also includes debt and gold. If they don’t wish to build such a portfolio themselves, they may opt for a multi-asset allocation fund.

Currently there are 13 multi-asset allocation funds with total assets under management of Rs. 27,688.92 crore. According to the Securities and Exchange Board of India’s (Sebi) circular on categorisation of mutual funds (dated October 2017), multi-asset allocation funds are a category of hybrid schemes which must invest in at least three asset classes, with at least a 10 per cent allocation to each. 

The primary benefit of investing in a multi-asset allocation fund is that you get access to a diversified portfolio. If you look at returns from the past, no asset class outperforms each year. Over the past five years, the outperforming asset classes were as follows: 10-year constant maturity gilt funds in 2018, US funds in 2019, small-cap funds in 2020 and 2021, and gold in 2022. If you are exposed to only one asset class, your portfolio may outperform in one year but underperform in others. To have a smoother journey, you need exposure to a diversified portfolio, which multi-asset allocation funds provide.