Can we invest in multi-asset mutual funds?

Published: August 22, 2020 at 12:01 pm

A multi-asset mutual fund is a new fund category introduced by SEBI. It has the mandate to invest at least 10% each in equity, debt and gold or permitted commodities at all times. We discuss the nature of available multi-asset funds, when investors should consider them and what to expect. We also consider if these funds can be considered as an alternative to large cap or other diversified funds instead of index funds.

The first problem with these funds is the limit on only 10% of the assets on each asset class. This means within the same category one can find multi-asset funds with strategic asset allocation and tactical asset allocation.

That is funds that define the proportion of equity, debt and commodities and then rebalance the portfolio each month according to that strategy or tactically vary the asset allocation with a combination of defined rules or qualitatively as per “prevailing or impending market or economic conditions”.

So within the same category of nine existing funds plus three new kids on the block – Motilal Oswal Multi-Asset Fund, Tata and Nippon India Multi-Asset Funds -,we can have debt-oriented funds (Nippon, Motilal Oswal) or equity-oriented funds (ICICI, HDFC, Axis) or funds with variable tax status (Quant, SBI).


This makes three aspects clear. One, star rating* if of no use – for all fund categories but it is easy to understand why here. That would be a comparison of apples with tomatoes grouped together because of their colour. * This category is only about two years and two months old. Therefore most star rating algorithms have not yet rated them.

Two, unless an investor is clear about why they are investing and what role a multi-asset fund should accomplish, they should stay away from this category. Three, with only two years of performance to consider, past performance is of no significance.

Asset Allocation History of Multi-Asset Funds

The monthly equity allocation history of multi-asset mutual funds is plotted below. Quant Multi-asset fund (black) has changed equity allocation by huge amounts. Technically it is a dynamic asset allocation that invests in three asset classes.

Monthly equity allocation weights for multi-asset mutual funds
Monthly equity allocation weights for multi-asset mutual funds

Essel Multi-asset (blue dot reaching up to 90%) has also reduced equity allocation below 65% once from May 2018. SBI Multi-asset (red) has remained a “non-equity fund” but its equity allocation can increase up to 80% according to its KIM (key information memorandum). Equity levels for the other funds – Axis, HDFC and ICICI have not varied as much.

When do multi-asset funds make sense? The first consideration is the investment duration. AMCs like HDFC recommend them for “three years and above”. Their fund can invest 65-80% in equity! So avoid them for short-term goals say less than five years (this is an arbitrary definition).

For 5-10 years you can only use them in a small amount (say 20-30%) and it must be the only equity-oriented fund in the portfolio. For long goals, it should at least be the core equity holding. Otherwise, the benefit of the three asset classes and periodic rebalancing among them would be lost.

Naturally, a multi-asset fund can be the only fund of a long-term portfolio but the equity allocation mandate of the portfolio should be narrow. The 65-80% limit for HDFC multi-asset fund, Axis Triple Advantage Fund and ICICI Multi-asset fund are suitable for this purpose.

However one could argue that an aggressive hybrid fund would also behave similarly and is simpler to understand with little chance of change in tax status.

What to expect: The standard deviation (a measure of daily volatility) for different ICICI funds is tabulated below. Notice that the Multi-asset fund is only a bit less volatile than a diversified large cap fund. Therefore a multi-asset fund that predominantly invests in equity should be considered as on with respect to risk ignoring the allocation to debt and gold (or other commodities).

Fund1Y2Y
ICICI Pru Equity & Debt Fund(G)-Direct Plan7.275.69
ICICI Pru Multi-Asset Fund(G)-Direct Plan7.325.63
ICICI Pru Balanced Advantage Fund(G)-Direct Plan6.594.89
ICICI Pru Bluechip Fund(G)-Direct Plan8.926.93

SBI Multi-asset with its lower equity allocation (by choice, not mandate) registered standard deviations of 4.3% and 3.2% over the last 1 and 2 years respectively. During a crash and bear market, this may seem inviting but adequate maturity is necessary to hold such funds during a bull run.

The same is also true If you wish to opt for multi-asset funds with lower equity ceiling – 50% in the case of Motilal Oswal and Nippon funds. In this case, lower return expectation would be in order along with appropriate investment allocation.

My investments in ICICI Multi-asset fund: About 1/3rd of my son’s future portfolio is invested in ICICI Multi-Asset Fund from Jan 2011 when it was ICICI Dynamic. Due to a combination of my inertia and confidence that a fund with 10,000 plus Crores AUM will change tax status from equity to debt, I have stayed put.  I have not noticed any perceivable benefit in terms of risk or reward after the fund changed mandate.

To summarise, the benefit of the multi-asset will be clear only if equity exposure is not too high. This would reduce volatility, potential returns and change the taxation status to debt.  If you wish to invest in an “equity-oriented” multi-asset fund an aggressive hybrid fund should at least be as good a choice. We need more time (data) to define a pattern of risk vs reward for this category.

Do share if you found this useful

We now publish both equity fund and debt fund (+ hybrid fund) screeners each month!
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 415 investors and advisors use this!
Unlock the secrets of successful financial advisors and entrepreneurs with our new course!
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Join our courses in exclusive Facebook Groups!

  • 550+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
  • Goal-based portfolio management! Join 2220+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content)  in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps