Is your SIP prepared for market turbulence? Consider this mutual fund option

The share market is currently witnessing sharp swings. At times, several stocks tumble due to tariff shocks triggered by Donald Trump’s policy moves. At other times, gold and silver surge, delivering strong returns. Meanwhile, bonds attract investors looking for relatively stable and assured income.

In such uncertain conditions, investment experts strongly recommend maintaining a diversified portfolio. The logic is simple: when you invest across multiple asset classes, at least one segment is likely to perform well at any given time. However, for many individuals, calculating allocations and managing investments across different assets can be complex and time-consuming.

In this scenario, mutual funds offer a convenient solution for common investors. By investing regularly- such as through systematic investment plans (SIPs)-it is possible to gradually build a substantial corpus. In recent years, a specific category of mutual funds has gained popularity: Multi-Asset Allocation Funds (MAAFs).

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Why are they called Multi-Asset Allocation Funds?

The term “multi-asset allocation” means that the fund invests in multiple asset classes. As per SEBI’s Categorisation Circular of October 2017, such funds must invest in at least three asset classes, with a minimum of 10 percent allocation to each. This structure makes them particularly suitable for investors who may not be able to construct and rebalance a diversified portfolio on their own.

What is an asset class?

An asset class refers to the category in which money is invested. For example, equity (stocks) is one asset class. Debt instruments such as bonds are another. Precious metals like gold and silver also form a separate asset class. Multi Asset Allocation Funds combine these different categories within a single fund, enabling investors to gain diversified exposure through one investment vehicle.

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What are the benefits?

One of the biggest advantages of a Multi Asset Allocation Fund is that it invests across several asset classes and is professionally managed by an experienced fund manager. Certified Financial Planner Sujan Das explains that individual investors often struggle to decide when and where to allocate money. With such funds, that burden shifts to the fund manager. As a result, portfolio adjustments are handled professionally, which can help reduce overall volatility and risk compared to investing in a single asset class.

Sujan Das also highlights a tax-related benefit. If an investor personally shifts money from equity to debt, or from debt to gold, each transaction may attract capital gains tax. However, in a multi-asset fund, the fund manager can rebalance allocations between asset classes within the fund itself. Investors are not required to pay capital gains tax each time the allocation changes; tax is applicable only when they redeem or sell their fund units. This allows investors to benefit from market opportunities without triggering frequent tax liabilities.

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Opportunity for better returns

Personal Finance Practitioner Nilanjan De points out that the equity portion of such funds may include global stocks as well. Even when all asset classes are included, the allocation may be weighted more heavily toward one segment, often equity.

Nilanjan De says, “All first-tier AMCs have multi-asset allocation products. Recently, there was a massive surge in silver prices, as a result of which the NAV value of many multi-asset funds increased significantly. Because these funds had investments in silver.” He adds that fund managers who had invested in silver beforehand generated strong returns, which ultimately benefited common investors. In many cases, gains from gold and silver have helped offset weaker performance in other asset classes.

However, like any mutual fund, multi-asset allocation funds also carry risks. Experts caution that it is impossible to predict in advance which segment of the market may face downturns. While diversification helps manage risk, it does not eliminate it completely.

{News Ei Samay does not provide investment advice anywhere. Investment and trading in the share market or any field involve risk. Proper study and expert advice are recommended beforehand. This news is published for educational and awareness purposes.}