Best Multi Asset Allocation Funds to Invest in 2023 – Top Performing Multi Asset Allocation Funds in India

January 30, 2023 Mutual Fund

Multi Asset Allocation Funds provide the benefit of diversification by offering you an opportunity to get tactical allocation across multiple asset classes. As you may be aware, allocation of assets across classes viz. equity, debt, gold, and even holding optimal cash is an important strategy that helps you balance risk-reward by adjusting the proportion of each asset in the investment portfolio. In this article we will be revealing PersonalFN’s list of the best Multi Asset Allocation Funds to invest in 2023.

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-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

So, a Multi-Asset Fund intends to flexibly diversify investments in asset classes that share a very low positive correlation. By doing this, it protects the downside risk by tactically investing across asset classes and be truly balanced.

[Read: How Multi-Asset Allocation Funds May Help You Cushion the Downside Risk in 2023]

Examples of Multi Asset Allocation Funds in India

AUM data as of December 31, 2022
(Source: ACE MF) 

Why should Multi Asset Allocation Funds should form a part of your portfolio?

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.

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.

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.

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

Data as of December 31, 2022
(Source: ACE MF, MCX, PersonalFN Research) 

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

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

Moreover, asset allocation is not static; it is dynamic. Meaning the asset allocation is reviewed regularly, and necessary portfolio changes are done based on the analysis of the influencing factors by the fund manager.

Average Asset Allocation of Multi Asset Funds

Data as of December 31, 2022
(Source: ACE MF, PersonalFN Research) 

The fund managers of Multi Asset 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.

Who should invest 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. With a Multi-Asset Fund, you as an investor will be able to balance the risk better with a sensible investment strategy in place. Ensure that you choose a suitable Multi Asset Allocation Fund that aligns with your personal asset allocation plan.

How are Multi Asset Allocation Funds taxed?

A Multi Asset Allocation Fund has the flexibility to dynamically allocate assets in its portfolio depending on its investment strategy and market conditions.

For taxation purpose, a Multi Asset Allocation Fund is treated as equity-oriented fund if it invests at least 65% of its assets in equity and equity-related instruments. In such a case, gains on units sold after one year are taxed at the rate of 10%, provided that the gain exceeds Rs 1 lakh in a financial year. If the holding period is less than one year, the gains are taxed at the rate of 15%.

For non-equity-oriented Multi Asset Allocation Funds, if the holding period is less than three years, the gains are taxed as per the investor’s income tax slab. For holding period of more than three years, the gains are taxed at the rate of 20% after indexation.

Which are the best Multi Asset Allocation Funds to invest in 2023?

Let us now look at the best Multi Asset Allocation Funds that have stood strong quantitative and qualitative parameters.

List of best Multi Asset Allocation Funds to invest in 2023

Past performance is not an indicator for future returns
Data as of January 25, 2023. Direct plan – Growth option considered
(Source: ACE MF) 

Best Multi Asset Allocation Fund to invest in 2023 #1: 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. The fund aims to provide the agility of equities, regular income through debt instruments, and a good hedge against inflation through a smaller allocation in gold. ICICI Pru Multi-Asset 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.

Fund Snapshot: ICICI Pru Multi-Asset Fund

Past performance is not an indicator of future returns
Portfolio data as of December 31, 2022
Returns and NAV data as of January 25, 2023. Regular Plan – Growth Option considered
(Source: ACE MF) 

Apart from equities, the fund also invests in derivatives, debt and money market instruments, gold (via ETFs and ETCDs), and REITs & InvITs for diversifying the portfolio. 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, ICICI Pru Multi-Asset Fund has registered a growth of 21.1% CAGR since its inception in October 2002. Over the longer 5-year to 7-year period, ICICI Pru Multi-Asset Fund stands among the top quartile performers in the Multi-Asset Allocation Fund category. The fund has the potential to steadily generate market-beating returns over complete market cycles.

Click here to read our detailed analysis on the features and performance of ICICI Pru Multi-Asset Fund.

Best Multi Asset Allocation Fund to invest in 2023 #2: SBI Multi Asset Allocation Fund

SBI Multi Asset Allocation Fund invests in a mix of debt & debt-related instruments, equity & equity-related instruments, gold & gold related instruments including domestic and overseas ETFs, units of REITs & InvITs. It was initially launched as a Monthly Income Plan and was recategorised as a Multi Asset Allocation Fund in 2018 to align with SEBI’s mutual fund rationalisation norms. The fund usually maintains a non-equity portfolio and prefers to have a well-balanced allocation across equity, debt, gold, and other instruments, depending on market conditions.

Fund Snapshot: SBI Multi Asset Allocation Fund

Past performance is not an indicator of future returns
Portfolio data as of December 31, 2022
Returns and NAV data as of January 25, 2023. Regular Plan – Growth Option considered
(Source: ACE MF) 

SBI Multi Asset Allocation Fund’s allocation to equities has ranged between 20-50% in the last one year along with allocation of around 25-30% in debt, and the balance in gold, and cash & cash equivalents. With substantial exposure to non-equity instruments, SBI Multi Asset Allocation may underperform during phases where equity markets are generating high returns. However, it has proved its potential to limit the downside risk and outpace its peers during bearish equity market phases. Over the long run SBI Multi Asset Allocation Fund can potentially outperform debt-oriented funds by a noticeable margin at a reasonable level of risk.

Best Multi Asset Allocation Fund to invest in 2023 #3: 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 55-75%, along with around 10% in debt instruments and about 15-30% in Gold ETFs. Despite being a small-sized scheme, Quant Multi Asset Fund has registered superior growth across most time frames.

Fund Snapshot: Quant Multi Asset Fund

Past performance is not an indicator of future returns
Portfolio data as of December 31, 2022
Returns and NAV data as of January 25, 2023. Regular Plan – Growth Option considered
(Source: ACE MF) 

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 around 120-250%. 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.

This completes our list of the best Multi Asset Allocation Funds to invest in 2023.

This article first appeared on PersonalFN here