Multi-asset allocation funds are a class of hybrid funds that invest at least 10% of their portfolio in a minimum of three different asset classes. We have covered the following in this article on the best multi-asset allocation funds:

1. Introduction to Best Multi Asset Allocation Funds

Multi-asset allocation funds are balanced mutual funds that invest at least 10% of their portfolio in three or more asset classes. The asset allocation of these funds generally includes securities across equity and debt markets, gold, real estate, and so on. This gives investors the benefit of exposure to a diversified portfolio. The main intention of these mutual funds is to provide investors with returns in the form of capital appreciation in the long run. Anyone looking to diversify their portfolio by gaining exposure to a variety of asset classes may consider multi-asset allocation funds as a good option.

2. Top Best Multi Asset Allocation Funds

The following table shows the top-performing multi-asset allocation funds depending on the past 3-year and 5-year performance:

 

Fund

3-Year Returns

5-Year Returns

Link

Axis Triple Advantage Growth

9.69%

10.02%

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ICICI Prudential Multi-Asset Fund Growth

2.55%

8.90%

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HDFC Dynamic PE Ratio Fund of Funds- Plan A Growth

4.32%

8.80%

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SBI Multi Asset Allocation Fund Regular Growth

7.32%

8.28%

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HDFC Multi – Asset Growth

6.93%

8.19%

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Edelweiss Aggressive Hybrid A Growth

5.62%

7.89%

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UTI Multi Asset Fund Regular Plan Growth

4.60%

7.37%

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3. Who Should Invest in Multi Asset Allocation Funds?

Investing in multi-asset allocation mutual funds is suitable for those investors who are not willing to assume higher levels of risk and are looking to earn stable and consistent returns on their investments. You may consider investing in these funds if you have an investment horizon longer than three years. The diversified portfolio mitigates the associated risks to a greater extent and provides regular returns. The equity exposure of these funds powers the scheme to offer capital gains in the long run. If you are looking at options to diversify your portfolio, then investing in a multi-asset allocation fund is apt for you.

4. Taxation of Multi Asset Allocation Funds

The dividends offered by any mutual fund are now added to your overall income and taxed at the income tax slab rate you fall under. This is in accordance with the amendments made in the Budget 2020. This way of taxing dividends is referred to as the classical way of dividends taxation. The taxation of capital gains of multi-asset allocation funds depends on equity exposure. If the equity exposure is in excess of 65%, then the scheme is taxed like an equity fund. If not, then it is taxed like a debt fund. The following table shows the taxation of capital gains offered by multi-asset allocation funds:

 

Funds

Short-term

Long-term

Equity-oriented funds



Holding period: Less than 12 months



Taxed at 15% irrespective of the income tax slab.

Holding period: 12 months and more


Up to Rs 1 lakh is tax-exempt. Anything above 1 lakh is taxed at 10%.

Debt-oriented funds



Holding period: More than 36 months


Added to your overall income and taxed at the income tax slab rate.

Holding period: 36 months and more




Taxed at 20% after indexation.

5. Risk Associated With Multi Asset Allocation Funds

The risk levels associated with a multi-asset allocation fund are on the lower side. This is because the portfolio of these funds is constituted in such a way that the fund invests at least 10% in a minimum of three different asset classes. This mitigates the risk of concentration to a greater extent and gives you the benefit of exposure to a diversified portfolio. The equity components of these funds carry market risk, volatility risk and concentration risk. The debt components possess liquidity risk, credit risk and volatility risk. If the fund has exposure to gold, then the fund can be influenced by the volatility of the gold price. If the fund has invested in real estate, then liquidity risk comes attached to it. However, having a long-term investment horizon mitigates these risks to a greater extent.

6. Things to Consider Before Investing in Multi Asset Allocation Funds

You have to consider the following before investing in a multi-asset allocation fund: i) Equity exposure: If you are not willing to bear higher levels of risk, then you may consider investing in a multi-asset allocation fund that has minimal exposure towards equities. ii) Taxability: You have to be aware of the taxation of the fund you are choosing to invest. If not, then you will get an unpleasant surprise upon the redemption of the units. iii) Investment horizon: Multi-asset allocation funds are a suitable investment option if you have an investment horizon longer than three years.

7. Advantages of Investing in a Multi Asset Allocation Fund

The following are the most significant advantages of investing in a multi-asset allocation fund:

  • You get exposure to a well-diversified portfolio.
  • The risk of concentration is minimal to nil.
  • Multi-asset allocation funds are known to offer steady returns over time.

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