3 Best Multi Asset Allocation Funds for 2024 – Top Performing Multi Asset Allocation Mutual Funds in India

January 17, 2024

Multi Asset Allocation Funds offer investors an opportunity to get tactical asset allocation across multiple asset classes and thereby benefit from diversification. Allocation of assets across classes such as equity, debt, gold, and even holding optimal cash is an important strategy that helps investors balance risk-reward by adjusting the proportion of each asset in the investment portfolio.

In this article we will reveal the list of the best Multi Asset Allocation Funds for 2024. But first, let’s find out more about the basics of the category.

What are Multi Asset Allocation Funds?

Multi Asset Allocation Funds are hybrid mutual funds that 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-correlated assets (usually equity, debt, and gold).

Examples of Multi Asset Allocation Mutual Funds in India

The securities quoted are for illustration only and are not recommendatory.
AUM data as of December 31, 2023
(Source: ACE MF, data collated by PersonalFN) 

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 of equities relative to historical averages

– Interest rate outlook

– Macroeconomic factors prevailing in India and globally

– The quality of securities

By dynamically diversifying investments in asset classes that share a low positive correlation, Multi Asset Allocation Funds protect the downside risk by tactically investing across asset classes and be truly balanced.

Why consider investing in Multi Asset Allocation Funds in 2024?

The year 2023 saw most asset classes generating superlative returns. While there are assumptions of the positive momentum continuing in 2024 due to strong macro and corporate fundamentals, investors should set realistic expectations of returns.

Due to the uncertain global environment that we are currently witnessing, one or more asset classes could experience high volatility in the near future. Therefore, diversifying investments across asset classes can prove to be a prudent strategy that can minimise the risk portfolio volatility.

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 one invests 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 not all asset classes move in the same direction at the same time.

[Read: How a Multi-Asset Fund Can Protect Your Portfolio at a Market High]

Diversification across asset classes can result in optimal risk-adjusted returns

Data as of December 31, 2023
(Source: ACE MF, MCX, PersonalFN Research) 

The low correlation among assets enables Multi Asset Allocation Funds to protect the downside risk better during uncertain economic conditions and volatile markets, and generate better risk-adjusted returns, compared to investing in just one asset class.

Therefore, by diversifying across multiple asset classes, the portfolio will be able to preserve the value of investors’ capital across market phases more effectively as well as earn decent risk-adjusted returns in 2024 and beyond.

What are the advantages of investing in Multi Asset Allocation Funds?

There are various advantages of investing in Multi Asset Allocation Funds as listed below:

1. Facilitates diversification across asset classes, which reduces the downside risk and optimises gains.

2. Enables timely portfolio rebalancing based on the performance and the outlook of each underlying asset 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. Investors earn stable returns across market phases.

How Multi Asset Allocation Funds fared over various market phases

Past performance is not an indicator for future returns.
Data as of January 12, 2024
(Source: ACE MF, data collated by PersonalFN) 

Moreover, asset allocation is not static; it is dynamic. This means that the asset allocation is reviewed regularly, and necessary portfolio changes are made based on the fund manager’s analysis of the influencing factors.

The fund managers of a Multi Asset Allocation Fund have much leeway in building a suitable portfolio based on the market conditions. The equity portion can be invested across market caps and sectors, while the debt portion can be invested across duration and credit profiles. In terms of gold, the investments are usually in Gold ETFs and Gold Exchange Traded Commodity Derivatives (ETCD). The balance can be allocated in cash and cash equivalents. Some Multi Asset Allocation Funds also hold exposure to Derivatives, REITs & InvITs, Silver, and Overseas equities.

What are the risks involved in Multi Asset Allocation Funds?

Depending on the composition of the portfolio and the dominant asset class, a Multi Asset Allocation Fund may be exposed to various risk factors. The equity component may be vulnerable to market fluctuations, liquidity, and concentration risks; the debt component may be influenced by the prevailing interest rate scenarios, liquidity, and credit profile, while the gold component (or any other commodity) can be affected by the prices of the commodity.

However, over the long run, the fund managers of a Multi Asset Allocation Fund can potentially manage risk and returns by efficiently balancing the portfolio to capitalise on the market opportunities.

It is also noteworthy that Multi Asset Allocation Funds have limited upside potential due to lower allocation to equities. Therefore, they may underperform pure equity funds during phases of secular bull run in the equity market.

Who should consider investing in Multi Asset Allocation Funds?

Multi Asset Allocation Funds are suitable for investors seeking long-term capital appreciation, have a moderately high-risk appetite, and have an investment time horizon of 3 to 5 years. They are also suitable for novice investors and investors who do not want to assume high risk but are looking to earn steady returns on their investments. Investors must ensure that they choose a suitable Multi Asset Allocation Fund that aligns with their personal asset allocation plan.

Watch this video to know about the 5 best mutual fund types for long-term investment:

How are Multi Asset Allocation Funds taxed?

The taxation of Multi Asset Allocation Funds depends on their equity exposure. If a Multi Asset Allocation Fund maintains an exposure of minimum 65% in domestic equities over the past 12 months, then the scheme is taxed like an equity fund, else it is taxed like a debt fund. The following table shows the tax treatment for different Multi Asset Allocation based on their exposure to domestic equities:

Thus, given the dynamic nature of Multi Asset Allocation Fund, it is important that investors stay informed about the tax implications of the scheme they invest in.

Which are the best Multi Asset Allocation Funds for 2024?

Past performance is not an indicator for future returns
Data as of January 12, 2024. Direct plan – Growth option considered; Returns are on a rolling basis and in %
(Source: ACE MF, data collated by PersonalFN) 

Best Multi Asset Allocation Fund #1: Quant Multi Asset Fund

Quant Multi Asset Fund focuses on dynamic management of the portfolio across equity, debt, and gold to navigate the tides of volatility with an aim to offer superior risk-adjusted returns. The scheme follows the fund house’s proprietary VLRT framework to determine allocation into each of the three asset classes.

Quant Multi Asset Fund predominantly invests in equities with remaining in gold and debt. In the last one year, the fund’s allocation to equities has ranged between 40-65%, 7-20% in Derivatives – Futures, 6-12% in debt instruments and about 10-35% in Gold ETFs. Despite being a small-sized scheme, Quant Multi Asset Fund has registered superior growth across most time frames. In the last 5 years, Quant Multi Asset Fund’s NAV has grown at a CAGR of 22.5% on a rolling return basis.

Fund Snapshot – Quant Multi Asset Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of December 31, 2023
Returns and NAV data as of January 12, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

Quant Multi Asset Fund is quick in its approach to shift allocation across market caps, sectors, and asset classes, depending on the market dynamics. Accordingly, the fund’s turnover ratio is usually higher at up to 300%. This strategy can enable Quant Multi Asset Fund to limit downside risk during uncertain and depressed market conditions, and also participate well during market uptrends.

Even though the volatility registered by the fund is higher compared to its peers, it has compensated its investors well by ranking high in terms of risk-adjusted returns.

Best Multi Asset Allocation Fund #2: ICICI Pru Multi-Asset Fund

ICICI Pru Multi-Asset Fund is the erstwhile ICICI Pru Dynamic Plan that is now categorised under Multi-Asset Funds. Under its current mandate, the fund invests predominantly in equities, having an average exposure of about 70% in the segment. The fund manager adopts a contrarian approach by remaining underweight in those sectors to which the larger market holds an elevated exposure.

ICICI Pru Multi-Asset Fund has a track record of performing exceptionally well during bull market phases, even though it has often struggled during bearish phases. Notably, the fund has registered a growth of 21.5% CAGR since its inception in October 2002. Its superior performance over various time frames in the past has attracted investors’ attention, making it the largest fund in the Multi-Asset Allocation category.

Fund Snapshot – ICICI Pru Multi-Asset Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of December 31, 2023
Returns and NAV data as of January 12, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

ICICI Pru Multi-Asset Fund aims to generate capital appreciation and income by investing across asset classes. In the last one year, the fund held a minimum of 65% of its assets in equities, derivative instruments such as Futures & Options, 10-15% in debt and money market instruments, with the balance in Gold ETFs / Futures, Silver Futures, REITs & InvITs, and cash.

The fund has a veteran fund manager, Mr Sankaran Naren, at the helm, who is known for his contrarian and value picks. With this, ICICI Pru Multi-Asset Fund has the potential to steadily generate market-beating returns over complete market cycles.

Best Multi Asset Allocation Fund #3: HDFC Multi-Asset Fund

Launched in August 2005, HDFC Multi-Asset Allocation Fund was earlier known as HDFC Multiple Yield Fund and categorised as a Monthly Income Plan, under which it invested predominantly in debt instruments with some allocation to equities. However, post SEBI’s categorisation norms for mutual funds, the scheme was reclassified as a multi-asset fund.

The fund now holds an equity-oriented portfolio, investing at least 65% of its assets. The fund also holds a minimum allocation of 10% each in debt and gold to reduce the portfolio volatility. Despite a drastic change in its investment mandate in 2018, the fund has performed fairly well post recategorisation, and has the potential to do so in the future as well. In the last 5 years, HDFC Multi-Asset Fund’s NAV has grown at a CAGR of 12.6% on a rolling return basis. HDFC Multi-Asset Allocation Fund appears well-placed in terms of portfolio characteristics and has the potential to outpace the benchmark and its peers over the long run.

Fund Snapshot – HDFC Multi-Asset Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of December 31, 2023
Returns and NAV data as of January 12, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

HDFC Multi-Asset Allocation Fund aims to invest in a diversified portfolio of equity and equity-related instruments, debt instruments, gold ETFs, REITs & InvITs, and cash based on prevailing market conditions. The fund manager can increase the equity exposure when market valuations are attractive and can prune down the equity exposure by increasing exposure to other assets when equity markets get expensive or experience high volatility.

This completes our list of the 3 Best Multi Asset Allocation Funds for 2024. Investors can consider the SIP route to invest in the category to minimise the impact of market volatility on the portfolio.

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Note: This write-up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully before investing.

This article first appeared on PersonalFN here