Gold prices jumped from the levels of ₹39,000 per 10 grams in the beginning of this year to cross record breaking levels of about ₹49,500 recently. Currently gold is hovering around ₹49,000 levels in the futures market. Gold prices are up 25% year to date. These kinds of returns can tempt anyone to invest in gold around this time. Does it make sense to invest in multi asset allocation funds now? Did you miss the bus?
Multi asset allocation mutual fund scheme as defined by Sebi is an open ended hybrid fund investing in the three different asset classes with a minimum allocation of at least 10% each in all three asset classes. Most of the multi asset allocation funds have equity, debt and gold in their portfolios. But there is an exception. Tata Multi Asset Opportunities Fund invests in other commodities like silver, copper, nickel, mustard seeds as well.
So, moving to should you invest in multi asset allocation funds? Well, mutual fund advisors do not seem to be in favour.
“It is a classic case of chasing returns and investing on the basis of looking at the back view mirror," says Saurabh Mittal, founder partner of a Mumbai based wealth management firm, Circle Wealth Advisors. “Gold is a good hedge but it does not make sense to invest in these schemes now for allocation to gold especially after the metal has already gone up at a fast pace," he adds.
Mutual fund advisors believe the multi asset allocation category is a good category which helps in diversification across different asset classes but as far as investing in gold is concerned, it does not give any control to investors to choose their allocation to the metal.
“Irrespective of its recent performance, we do advise clients to have 5 to 15% of their investments in gold. Ideally, this can be in separate blocks rather than in one fund, where they have no control on when and how much to invest. Sovereign Gold Bonds (SGB), physical gold bars and gold ETFs are more preferred ways of investing," says Shweta Jain, founder, Investography, a Bengaluru based investment planning firm.
Also, the advisors say while gold has done really well in the last six months, multi asset allocation funds might not be able to match the performance due to small allocation to gold in their portfolio.
“While it is correct that gold has done really well in the last six months, its proportion in any multi asset allocation fund would be small. Moreover, if one sees from a contrarian perspective, because If these funds only form a fraction of any person’s portfolio, then the benefit of such diversification would be fairly limited," says Raghvendra Nath, MD, Ladderup Wealth Management, a Mumbai based financial planner.
The gold allocation in portfolio of multi asset allocation funds ranges between 10% and 28%. According to Value Research, the average category return year to date is -2.92%.