As markets turn volatile, is investing in multi asset allocation funds a good strategy for retail investors?

The secondary market has been undergoing a lot of pressure lately. Benchmark index Nifty50 has already fallen 16 percent off its peak level. On account of volatility, it is recommended to invest in safer assets which include precious metals such as gold, debt funds and fixed deposits, among others.

Interestingly, retail investors are gradually reducing their exposure to equity schemes, albeit marginally. The latest AMFI data for February revealed that inflow into equity mutual funds declined by 26 percent on a month-on-month basis.

Inflow into equity schemes reduced from ₹39,687 crore to ₹29,303 crore, thus reflecting the confidence of small investors into mutual fund schemes.

It is recommended to explore investing in hybrid mutual funds such as multi asset allocation funds, which have exposure to such asset classes as equity, debt and precious metals.

Multi asset allocation funds

Those who do not know multi asset allocation funds refer to the schemes which have investment in a minimum of three asset classes with a minimum allocation of at least 10 per cent in each asset class.

There are a total of 28 schemes with total assets under management of ₹1.02 lakh crore out of which February alone saw an inflow of ₹2,228 crore.

These are some of the advantages of investing in multi asset allocation funds.

Advantages of investing in multi asset funds

I. Diversified portfolio: Multi-asset allocation funds usually invest in equity, debt, and another asset class such as gold or commodities. These schemes aim to offer diversified portfolios to investors while balancing risk and return more effectively than investing in a single asset class.

II. Hedging during volatility: When equities tumble during bear phase, these funds – by virtue of investing in non-equity assets – provide protection against the downside of equity.

III. Expert guidance: During the bull run, exposure to equity can be increased while it can be decreased during a bear run. These investing decisions are usually taken by expert fund managers who tend to monitor the overall economy and different sectors of industry and invest accordingly.

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