WHAT ARE MULTI-ASSET FUNDS?
Multi-asset allocation schemes invest in a mix of three or more assets such as equity, gold and bonds. Some funds also include REITs, InvITs and international stocks. The objective of such a scheme is to diversify and spread risk across different asset classes and provide a balanced portfolio that can potentially generate returns across market conditions. Such a strategy helps reduce the risk of investing in a single asset class.
WHAT ADVANTAGES DO THESE FUNDS OFFER?
Multi-asset funds help investors in asset allocation and give readymade portfolios. This typically helps investors who cannot afford the services of a financial planner or wealth manager. Such a fund aids investors who do not want a scheme for each asset class and want fewer products in their portfolio. Since the scheme has a defined allocation to each asset class, be it equity, debt or gold, it helps in automatic asset allocation.
Since different asset classes move in different directions based on market conditions, investors need to rebalance their portfolios once every year. For example, if equities move up, they need to cut exposure to equities and reallocate to fixed income or gold and vice-versa. Multi-asset funds come with the option of automatic rebalancing that helps investors ride through the ups and downs of the market.
HOW ARE THESE FUNDS TAXED?
Multi-asset funds that allocate 65% or more to equity, with the remaining invested in fixed income and gold, are taxed as equity funds. This means investors have to pay long-term capital gains tax (LTCG) of 12.5% if held for more than a year. Most funds reach the 65% mark using a mix of stocks and arbitrage. In many schemes, the exposure to equities currently stands at 30-40%, with the remaining 25-35% being in arbitrage schemes. There are schemes which allocate between 35% and 65% to equities, which makes them eligible for LTCG of 12.5% if held for more than two years.