Understanding Multi-Asset Funds: A Comprehensive Guide

Strategic Insights -

Multi-asset allocation schemes invest in a mix of three or more assets such as equity, gold, and bonds, allowing investors to diversify and spread risk across different asset classes. This strategy helps reduce the risk of investing in a single asset class and provides a balanced portfolio that can potentially generate returns across market conditions. Multi-asset funds offer several advantages, including automatic asset allocation, automatic rebalancing, and tax benefits for certain categories of investors.

Key Takeaways:

  • Multi-asset funds invest in a mix of three or more assets, such as equity, gold, and bonds, to diversify and spread risk across different asset classes.
  • The objective of these funds is to provide a balanced portfolio that can potentially generate returns across market conditions.
  • Multi-asset funds help investors in asset allocation and provide readymade portfolios, which is particularly beneficial for investors who cannot afford the services of a financial planner or wealth manager.
  • Automatic rebalancing is an option in multi-asset funds, which helps investors ride through the ups and downs of the market.
  • Multi-asset funds with 65% or more allocation to equity are taxed as equity funds, and investors have to pay long-term capital gains tax (LTCG) of 12.5% if held for more than a year.
  • Schemes that allocate between 35% and 65% to equities are eligible for LTCG of 12.5% if held for more than two years.

Statistics:

  • 65% or more allocation to equity in multi-asset funds make them taxable as equity funds.
  • 12.5% long-term capital gains tax (LTCG) for multi-asset funds with 65% or more allocation to equity if held for more than a year.
  • 30-40% exposure to equities in some multi-asset fund schemes
  • 25-35% remaining allocation in some multi-asset fund schemes
  • 35% to 65% equity allocation in some schemes making them eligible for LTCG of 12.5% if held for more than two years.

Sources:

  • The Hindu BusinessLine - "What are multi-asset funds?"
  • The Economic Times - "How multi-asset funds can help diversify your portfolio"