A one-stop solution for all your asset allocation needs

Taking into cognizance these aspects, mutual fund houses have introduced a type of hybrid mutual fund scheme which can help address these challenges. The solution is in the form of a multi-asset allocation fund. This type of mutual fund has the flexibility to invest across different asset classes from equity, debt, and gold. Offlate with the increased interest seen in international equities, some fund houses have added exposure to international equities as a part of the asset mix.

Historical returns data shows that not all asset classes perform equally well in different economic cycles. For example: During the onset of the pandemic, when equities both domestic and global were battered, gold sparkled bright while debt as an asset class was more or less stable. Also, no one can predict which asset class is likely to do well in which part of the market cycle. So, the prudent approach is to diversify your investments across asset classes such that your portfolio has exposure to the winning asset class in any phase of the economic cycle.

An investor today is inundated with information regarding various asset classes. However, translating all this available information into profitable investments is no easy task. This is because your behavioural biases such as greed and fear comes into play and tends to play spoilsport in the decision making process. While at it, with every buy and sell transaction, an investor is bound to attract either short or long term capital gains tax.

Over long term, the tax incurred while rebalancing can cut into your gains and can spoil your investment experience. However, when such transactions are done on a fund level, the investor does not incur any tax implication, making it a win-win situation for an investor. For example: Rs. 1 crore invested in a multi-asset scheme in 2016 would have delivered Rs 2.08 crore as on November 22, 2021. At the same time, if an individual were to replicate all the trades made in the fund, the gains would amount to only Rs. 1.83 crore, i.e. a tax implication of ~Rs 25 lakh.

On the active side there are several multi asset schemes available for an investor. But if you are a fan of passive investment and is looking for a passively managed multi asset scheme, then a viable option here is the ICICI Prudential Passive Multi Asset Fund of Fund.

The scheme provides a blend of all asset classes i.e. 25-65 per cent in domestic equity ETFs and index funds, another 25-65 per cent in debt ETFs and index funds, 0-15 per cent in gold ETFs and 10-30 per cent in global equity ETFs and index funds. While domestic equity will help generate capital appreciation, debt will aid in generating stable returns. The presence of gold will act as a potential hedge against inflation and through global equities you can benefit from geographical diversification while being a part of mega trends.

In effect, the scheme will not only give you ample mix within each asset class but it will also be tax and cost efficient. Investors who are looking for lump sum investment opportunities can consider investing in this fund.