Multi-Asset Funds: A fund that handles your asset allocation.

With the most talked-about event, the election, coming to an end, we can see chaos on the floors of stock markets. Each investor has their own interpretation when it comes to results and post-market sentiments. Some expect a rally in equity, whereas some expect a subtle performance. So now the question arises: what should you do? Should you pour more into equities or seek a balance?

Different Investments:

There are different types of investments, like stocks and bonds. Stocks can help your money grow over time, while bonds can add stability to your investment mix. There are also other types of investments like gold and real estate, generally known as alternative investments. Usually, people end up putting more of their money into one type of investment. Some people like the chance to make more money, so they invest a lot in stocks. Others prefer stability, so they invest more in debts.

As we all know, investing in stocks comes with market risk. However, over the past few months, we’ve seen the market performing well, allowing people to make more money than they expected.

Diversify your investment:

Diversifying your investments is essential for managing risk. It ensures that if one investment underperforms, others may compensate, reducing the overall volatility of your portfolio.

Multi-Asset Funds:

Understanding the importance of reducing risk through diversification is crucial. But for an average person, keeping track of multiple asset classes can be challenging. That’s where Multi-Asset Funds (MAFs) come in.

A Multi-Asset Fund is a type of investment that encompasses various asset classes such as equity, debt, commodities, and more within a single fund. According to regulations, MAFs must allocate to at least three asset categories, with each category receiving a minimum allocation of 10%.

When utilizing a MAF for allocation, the fund’s exposure to different assets helps offset the varying performance of equity, debt, gold, etc., resulting in a balanced portfolio and potentially optimal returns. A professional fund manager handles the allocation across assets and stock selection in equities, as well as decisions regarding the maturity of the debt component.

Within the equity segment, the fund manager can choose growth-oriented companies with relatively higher dividend yields. Unlike direct stock investments where dividends are taxable at the marginal slab rate, MAFs themselves are tax-free entities. If held for one year, the tax on overall returns is typically 10%.

Why Multi-Asset Funds:

Multi-asset allocation is crucial because different types of investments can have significant ups and downs each year. For example, domestic and international stocks, gold, and to some extent, bonds can have unpredictable returns. Sometimes stocks do really well, but other times they might perform poorly. The same goes for gold.

Even within a single type of investment, like stocks, there can be winners and losers each year. It could be large companies or smaller ones, or certain industries like technology or consumer goods, depending on how the economy is doing.

In bonds, it could be long-term or short-term bonds that perform better. To balance out these ups and downs and still make good money, it’s essential to spread your investments across different types of assets. This way, you can smooth out the impact of market swings and aim for the best returns.

So, how do you spread out your investments? You could put your money in funds that focus only on stocks or bonds, or you could choose a hybrid fund that mixes different types of investments.

Takeaway:

Now that we know diversification is important, figuring out which types of investments to choose and how much to invest in each can be tricky. It varies for each person based on what they like and what they’re comfortable with.

One common mistake to avoid is putting your money into an investment just because it did well recently. Instead, it’s important to understand your own tolerance for risk, the risk of the investment you’re considering, and how long you plan to keep your money invested.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.