Multi Asset Funds continue to outperform Equity Schemes – What investors should know

An examination of 25 multi-asset funds has shown they have surpassed the performance of most general equity schemes over one, three, and five-year periods. These funds are distinguished by their ability to generate competitive returns across various asset classes, offering a diversified investment strategy that is often absent in single-asset equity funds, as per a report from Ventura Securities.

The growing appeal of Multi Asset Allocation Funds can be attributed to their capacity for diversification, potential tax advantages, and superior risk-adjusted returns.

“Certain Multi Asset Allocation Funds have outperformed the majority of equity schemes, highlighting the advantages these funds can offer. The analysis conducted by Ventura Securities emphasizes the significant benefits of multi-asset funds, including strong returns. These funds present appealing choices for investors aiming for a balanced risk-reward profile. Nevertheless, the differences in performance highlight the necessity of choosing funds that align with individual investment goals and risk tolerance, reinforcing the idea that a uniform approach is not suitable for all in multi-asset allocation,” says Juzer Gabajiwala, Director at Ventura Securities Ltd.

Performance of select Multi Asset Allocation Funds and the percentage of equity schemes, each has outperformed

The Multi Asset Fund from Quant AMC has shown a notable performance, outperforming approximately 79% of equity schemes based on its 3-year returns and 86% over a 5-year period. Its allocation strategy, despite a controlled equity exposure of less than 51%, has proven successful in surpassing the returns of numerous equity funds. ICICI Prudential Multi Asset excelled, outperforming 63% of equity schemes’ returns over a 3-year period and nearly 50% over a 5-year time-frame.

No. of Equity Schemes [1 Year: 640, 3 Years: 458 & 5 Years: 366]

Asset Allocation strategies across all 25 Multi Asset Allocation Funds

The allocation strategies that exist across 25 multi-asset allocation funds show a huge variation, heavy on equity and debt along with a mix of gold and silver, arbitrage and other alternative assets. This diversity underscores the fact that ‘one size does not fit all’ as each fund follows a distinct strategy tailored to different market conditions and investor objectives.

Some funds have outperformed large-cap funds by delivering higher returns with lower associated risk. The analysis of the risk-reward ratio across these schemes reveals interesting insights:

WhiteOak delivers solid returns with minimal risk, showcasing a risk-reward ratio of 16.6 compared to the large cap’s 2.8. Its diversified asset mix – spanning Gold, Equity, Debt, REITs, and INVITs – effectively spread risk.

Quant has a slightly lower risk-reward ratio of 16.4, closely matching WhiteOak. However, it carries higher risk due to its greater equity allocation, though it maintains a diversified portfolio.

DSP and Shriram, with low risk-reward ratios of 7.3 and 7.0, respectively, deliver decent returns but entail relatively high risk. This highlights that some funds are more effective at optimizing returns for each unit of risk taken.

This highlights that some funds are more effective at optimizing returns for each unit of risk taken. Therefore, it’s important to select a fund that aligns with your preferred balance of risk and reward.

The Conservative Funds that has equity exposure of less than 35% includes only two fund houses such as Edelweiss and WhiteOak, which have minimal equity exposure. Moderately Aggressive Funds includes most of the fund houses DSP, UTI, HDFC, AXIs and etc. Aggressive funds with more that 65% equity exposure include 5 fund houses, Bajaj Finserv, Shriram, Motilal Oswal, HSBC and Baroda Multi Asset Allocation Funds.

These funds are ideally suited for first time investors; funds for retirement and education goals etc. Let us understand with an example how these strategies can benefit individuals nearing retirement who are focused on building a stable corpus for their post-retirement years.

Assume you invest a lump sum of Rs 62 lakh at the age of 55, with an estimated return of 10% pa. Over a period of 5 years, this investment would grow to Rs 1 crore. At the age of 60, you begin a Systematic Withdrawal Plan (SWP) of Rs 50,000 per month, which is approximately 6% of the corpus. To account for inflation, your withdrawal amount increases by 5% each year. Over the next 25 years, you would still retain a corpus of Rs 50 lakh.

Thus, it makes multi asset an ideal retirement planning tool which would not only beat inflation but also offer an optimal post tax return with a balanced risk.