What are multi-asset allocation funds? Comparing the top 5 funds by portfolio allocation

Multi-asset allocation funds invest across multiple asset classes, allowing investors to benefit from diversification. However, each fund can deliver different outcomes depending on how its assets are allocated.

So, let's understand multi-asset allocation funds in detail and explore the top 5 funds based on their portfolio allocation.

What are multi-asset allocation funds?

Multi-asset allocation funds are hybrid mutual funds that must invest in at least three asset classes, such as equities, debt, and gold. As per SEBI regulations, each of 3 asset classes must have a minimum allocation of 10%.

Depending on the fund's strategy, the portfolio may include equities, fixed-income securities, gold or other commodities, real estate investment trusts (REITs), or international investments.

What are the benefits of investing in multi-asset allocation funds?

One of the biggest advantages of multi-asset funds is diversification. Since different asset classes perform differently over time, investing across them can help balance risk and return.

For instance, equities have the potential to generate long-term growth while debt investments generally provide greater stability.

Which are the top 5 multi-asset allocation funds by AUM?

How do these multi-asset allocation funds differ in their portfolio allocation?

The five funds differ primarily in their allocation to equity, debt, commodities, and cash.

1. ICICI Prudential Multi Asset Fund adopts a balanced strategy with 60.49% in equities and a relatively high 13.42% allocation to cash. The larger cash buffer helps the fund manager deploy capital when investment opportunities arise.
2. SBI Multi Asset Allocation Fund follows the most conservative approach. It has the lowest equity exposure (47.14%) and the highest allocation to debt (34.12%), which can help cushion volatility but may also limit upside during bullish markets.
3. Nippon India Multi Asset Allocation Fund combines 59.84% equity exposure with the highest allocation to commodities (14.95%) among the five. This may provide additional diversification, especially during periods when gold and other commodities outperform equities.
4. Kotak Multi Asset Allocation Fund appears to be the most aggressive among the five, with 70.15% invested in equities. Its relatively lower allocation to debt (11.49%) and minimal real estate exposure suggest that its performance will be more closely tied to stock market movements.
5. DSP Multi Asset Allocation Fund maintains a balanced allocation across asset classes, with the highest real estate exposure (4.66%) and 8.73% in cash.

Overall, Kotak carries the highest equity risk, SBI appears relatively defensive because of its larger debt allocation, while ICICI Prudential, Nippon India, and DSP occupy the middle ground with different diversification strategies through cash, commodities, and real estate exposure.

What are the risks of investing in multi-asset allocation funds?

Multi-asset allocation funds are subject to fund manager bias, as managers may allocate a larger share of the portfolio to specific asset classes.

Another key risk is market risk, as a higher allocation to equities can lead to greater volatility during market downturns. At the same time, funds with larger allocations to debt and cash may generate relatively lower returns when equity markets rally.

These funds are also exposed to interest rate risk through debt investments and commodity price risk, particularly when they hold gold. Since the mix of asset classes varies across schemes, the risk and return profile of each fund can differ significantly.

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.