When it comes to investing, investors often react impulsively. During bull markets, one tends to go overboard investing in equities, while during a correction or volatile phase, investors tend to cash out on one’s investment. Both of these approaches are detrimental to one’s wealth creation journey. This is where multi-asset investing as a strategy becomes very pertinent.
By spreading investments across various asset classes like equity, debt, commodities and several other asset classes, an investor can lower the overall risk profile of the portfolio. While it is true that equities offer growth potential but the caveat here is that the asset class is also among the most volatile ones. On the other hand, debt instruments provide stability and regular income while commodities such as gold serves as a hedge against inflation and uncertainty.
Through such asset class diversification, the impact of a downturn in one asset class is mitigated by gains in another, thereby smoothing out the overall portfolio performance. This balanced approach not only safeguards against significant losses but also enhances long-term returns, making multi asset investing essential for investors seeking stability and growth in their portfolio.
Advantages of Multi-Asset Investing
Multi-Asset Investing is crucial for investors due to several reasons. Firstly, it recognizes the cyclical performance of various asset classes. For instance, while equities may surge in one year, gold might excel in another. By investing across multiple asset classes, the portfolio tends to be resilient and returns over the long term are optimised, irrespective of the market environment.
Secondly, by incorporating a mix of liquid and illiquid assets, multi-asset investing aids in liquidity management. Liquid assets like equity, debt and commodities provide quick access to cash, while illiquid assets like real estate may prove to be a challenge when looking to liquidate leading to longer than anticipated holding periods. Balancing liquidity needs across these assets ensures investors have funds readily available when required while maximising long-term returns.
Lastly, multi-asset investing offers flexibility, allowing investors to adjust their portfolios according to changing market conditions, maximising opportunities and minimising risks over time.
However, adhering to this style of investing is easier said than done. As a means to make this strategy accessible to investors at large, mutual funds have launched multi-asset based offerings. Multi asset allocation fund is a type of hybrid mutual fund, that is designed to provide investors with exposure to multiple asset classes within a single investment vehicle. These funds are mandated to invest a minimum of 10% each in at least three asset classes. In most cases the three asset classes under consideration are equity, debt, and commodities.
Given that the fund manager has the flexibility to adjust the portfolio allocation according to prevailing market conditions, an investor need not worry about rebalancing the exposure to various asset classes. Another advantage which these funds offer is tax efficiency i.e. if the fund allocates at least 65% to equities, then the offering attracts equity taxation.
To conclude, a unique combination of diversification, flexibility, and tax efficiency makes multi asset investing and consequently multi asset allocation funds an attractive option for investors seeking a balanced and efficient approach to wealth accumulation.
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