Not all multi-asset allocation funds are alike: Only one scheme is rated low risk —why others are red-flagged

Investors often look at a mutual fund’s returns before investing, but the risk taken to generate those returns is equally important. The riskometer displayed by mutual funds helps investors understand where a scheme stands on the risk spectrum.

The six risk levels are: Low, Low to Moderate, Moderate, Moderately High, High and Very High.

Multi-asset allocation funds, which fall under the hybrid fund category, are required to invest across at least three asset classes. These can include equity, debt, gold, silver, real estate, cash and cash equivalents, among others.

According to Value Research data, multi-asset allocation funds have different risk levels despite belonging to the same category. As per AMFI's June data, there are a total of 34 multi-asset allocation funds. Of these, only one fund was classified as Low Risk, while five were classified as High Risk.

None of the funds fell under the Low to Moderate, Moderate, or Moderately High risk categories. The remaining 28 funds were classified as Very High risk.

Only one multi-asset fund has ‘Low’ risk

Among the 34 funds, Edelweiss Multi Asset Allocation Fund was the only scheme marked ‘Low’ on the riskometer.

The fund's portfolio has a significant allocation to relatively lower-risk assets. It has a 59.99% allocation to debt and 48.23% in cash and cash equivalents.

Five funds fall under ‘High’ risk

The 360 ONE Multi Asset Allocation Fund has 23.51% of its assets invested in equity, 33.15% in debt, 23.94% in commodities, 6.2% in real estate and 13.2% in cash and cash equivalents.

On the other hand, WhiteOak Capital Multi Asset Allocation Fund has 29.32% in equity, 38.9% in debt, 10.89% in commodities, 18.58% in real estate and 2.31% in cash and cash equivalents.

This means that a higher allocation to equity can increase the fund’s overall risk level.

Multi-asset allocation funds with ‘Very High’ risk

The remaining 28 of the 34 multi-asset allocation funds were classified as Very High risk. Some of the funds in this category include:

The Aditya Birla Sun Life Multi Asset Allocation Fund has invested 70.97% of its assets in equity, 11.31% in debt, 11.78% in commodities, 5.14% in real estate and 0.8% in cash and cash equivalents.

Multi-asset allocation funds are designed to diversify investments across asset classes, but this does not mean that every fund in the category carries the same level of risk.

The portfolio mix can differ significantly from one scheme to another. A fund with a higher allocation to equity can have a different risk profile from one that has a larger allocation to debt or cash.

Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.