Explainer | Demystifying asset allocation in different multi-asset funds

Just because all multi-asset funds invest across asset classes, one such scheme can be different from another.

March 07, 2019 / 09:13 AM IST

Multi-asset funds invest in a mix of shares, bonds and gold. As per the Securities Exchange Board of India (SEBI), these schemes are expected to invest at least 10% in each of at least three asset classes. That gives a significant leeway to the fund houses to devise asset allocation of their schemes.

For example, Franklin India Multi Asset Solution Fund (FIMAS) invests 10-75% each in equities and bonds. But its investments in gold is capped at 50%. Axis Triple Advantage Fund (ATAF) invests 65-80% in equities and the rest in bonds and gold <see table>.

multi asset fund1

The difference between the funds is not just due to the different allocations across asset classes. Some of these schemes like FIMAS and Quantum Multi Asset Fund are fund of funds. In simple words, they invest in other mutual fund schemes too. Schemes such as ATAF and Essel 3 in 1 Fund invest in shares and bonds directly; for their gold allocation they invest in a gold exchange traded funds.

In other words, though most multi-asset funds invest across equity, bonds and gold, one such fund could be quite different from another.

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Within the broad limits that each of these schemes set of their chosen asset classes, fund managers decide how much they want to invest in each of these asset classes. For example, as on January 31, 2019, FIMAS had invested 40% of its corpus in equities whereas ATAF had invested 69% of its corpus in equity.

The timing of investments, rebalancing, stock-picking skills among other factors will influence the scheme performance over long term. Here is how these schemes performed:

multi asset fund2Although many of these funds come with a 5-year track record, note that not all were born as multi-asset funds to begin with. Due to the re-categorisation and classification of mutual funds in 2018 due to a Securities and Exchange Board of India directive, some fund houses chose to re-classify some of their existing schemes into multi-asset funds.

That’s why most of the schemes in this category have limited history in their current form. So before you select a scheme in this category, know that the past returns may have come because of the schemes’ past version and not its current one.

The fund manager, based on the scheme’s mandate and his analysis of where he thinks the equity and debt markets are headed, would change the asset allocation instead of you having to do it, should you invest in three different funds.

What works against investors is the sheer variety of asset allocation combinations that you get, which makes it difficult for us to compare one multi-asset fund with another.

How your multi-asset fund gets taxed also depends on its underlying asset allocation. For starters, if it’s a fund-of-fund, then its gets taxed like a debt fund; 20% after indexation on gains if units held for more than three years and taxed at income tax rates if you withdraw before three years.

If it invests directly in equities and bonds, then it gets taxed like an equity fund, if your fund had invested in equities of at least 65% of its corpus. This means; 15% tax for withdrawals made before one year, 10% long-term capital gains tax, provided the gains are in excess of Rs 1 lakh, if units are sold after a year. Schemes like ATAF will always be considered equity funds for taxation purposes as its mandate is to invest at least 65% of its corpus in equities.

Make note of these complexities, should you decide to invest in a multi-asset allocation fund.
Moneycontrol News
first published: Mar 7, 2019 09:13 am

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