Unlocking Opportunities: The Importance Of Multi-Asset Strategy In Today's Market

In the dynamic landscape of financial markets, where uncertainties abound, investors may find a saviour for their investment in multi-asset funds to navigate the complexities and harness opportunities. This approach, rooted in diversification, not only provides a shield against market volatility but also unlocks the potential for enhanced returns.

Author, Parag Paranjpe,Director,Think Finserv

The Essence of Multi-Asset Strategy

A multi-asset fund involves investing across different asset classes, such as equities, fixed income and commodities, to name a few. As per SEBI’s scheme categorisation, Multi-Asset Funds must fulfil two conditions. The first condition is to invest across three or more asset classes. The second is to invest 10 per cent in each of the three asset classes. The remaining 70 per cent can be invested as per the mandate of the fund or the fund manager's view. 

The primary goal is to spread risk and optimise returns by capitalising on the strengths of different assets in varying market conditions. The equity markets tend to have a more favourable tax regime, and for this, the fund should have 65 per cent gross exposure to equity at all points. Therefore, many multi-asset funds tend to maintain a higher equity allocation in the portfolio. 

Benefits of Multi-Asset Strategy

One of the key advantages of a multi-asset strategy is risk mitigation. Different asset classes respond differently to market events. While equities offer growth potential, fixed income provides stability. By diversifying investment in gold, investors can cushion the impact of adverse market movements, thereby enhancing the overall risk-adjusted performance.

The beauty of a multi-asset strategy lies in its potential for enhanced returns in an uncertain environment. As various asset classes perform differently in different market cycles, a well-structured allocation can capture opportunities for growth while safeguarding against potential downturns.

Multi-asset portfolios allow for dynamic adjustments based on market conditions. Fund managers can strategically allocate assets, shifting weightings to capitalise on emerging trends or mitigate risks promptly.

The Allure of Gold in the Current Scenario

In times of economic uncertainty on the geo-political front and inflationary pressures; commodities like gold emerge as attractive investment options. Gold, often considered a safe-haven asset, tends to retain its value and even appreciate during turbulent market phases. Also, looking at current valuations, it seems that gold can be a favourable asset class to take exposure. 

Tax Efficiency

Investors keen on tapping into the potential of gold and debt can leverage a multi-asset strategy without the tax implications and exit loads associated with direct investments. By opting for multi-asset funds, which include allocations to gold and debt instruments, investors enjoy the benefits of these assets within a tax-efficient framework.

Multi-asset funds, despite having exposure to gold and debt, can maintain their equity-oriented status for taxation purposes. This tax efficiency allows investors to capitalise on the favourable tax treatment applicable to equity investments, contributing to overall portfolio returns.

Investing in individual asset classes may incur tax when rebalancing or reallocating among the funds. In a multi-asset fund, these costs are mitigated, as the fund manager can make strategic adjustments at the portfolio level without triggering capital gains tax associated with changing asset allocation.

Equity Benefits

The inclusion of equities within the multi-asset framework ensures that investors do not miss out on the growth potential offered by the stock market. The diversified nature of the fund provides exposure to equities while balancing risk through allocations to other asset classes.

Navigating Complexity with Simplicity

In an era where financial markets are increasingly interconnected and unpredictable, a multi-asset strategy emerges as a beacon of stability and growth. By harnessing the benefits of asset allocation, especially in commodities like gold and debt, investors can navigate market complexities without compromising on tax efficiency or incurring unnecessary exit loads. Embracing simplicity through a well-crafted multi-asset strategy becomes a strategic imperative for those seeking a resilient and high-performing investment portfolio in today's challenging environment.