Your bets on multi-asset allocation funds must factor in equity play

Mumbai: Investors looking to put money in multi-asset allocation funds – a popular category with a mix of stocks, debt and gold – must parse these portfolios before investing in them. This is because various schemes in this category have varying equity exposure that may not be suitable for all.

Assets under management (AUM) of 25 multi asset allocation schemes have more than doubled from ₹45,092 crore in October 2023 to ₹1.05 lakh crore in October 2024.

Equity exposure in these schemes varies from nil to 70%. “The allocation strategies that exist across 25 multi-asset allocation funds show a huge variation, making it important for investors to choose the right fund,” says Juzer Gabajiwala, director, Ventura Securities.

A study by Ventura Securities for the period ending September 30, shows that one scheme had no equity exposure and one had less than 35% equity exposure. While 18 schemes had between 35% and 65%, five have an equity exposure higher than 65%.

Investment advisors said investors are generally unaware of the wide disparities in the equity allocations in this category “Many investors into these schemes are moving money from FDs or gold,” said Harshvardhan Roongta, CFP, Roongta Securities. “They should opt for a scheme with low equity allocation as that would lower risk and volatility in their portfolio.”

Multi asset schemes with a lower equity allocation could work well for conservative investors who are first-time investors in mutual funds or do not like high volatility.For example, in the period from September 26 to October 31, 2024, when the Nifty 50 lost 7.67%, schemes like SBI Multi Asset Allocation, BOI Multi-Asset, Mahindra Manulife Multi-Asset, Edelweiss and White Oak Multi-Asset with a less than 40% allocation to equity, saw their net asset value (NAV) dip less than 2%.”Allocate money to a fund manager with a demonstrated track record, who can understand cycles and increase or reduce allocation to an asset class,” said Nikhil Gupta, founder, Sage Capital.

Gupta recommends ICICI Prudential Multi-Asset Fund and Whiteoak Multi Asset Fund.

The tax angle also comes into play. Those schemes with 65% allocation or more to equity, are eligible for long-term capital gains tax of 12.5%. In comparison, others where equity holding is between 35% and 65% are eligible for long-term capital gains tax after holding for two years.