So far in 2016, equity markets have remained quite volatile with the Nifty and BSE Sensex declining 2-3 per cent. Income and gilt funds posted returns between 3 and 4 per cent, but gold has been one of the best performing asset classes with returns of around 20 per cent. In 2014, equities went up undisputed, while gold suffered. Gilt and income funds did well. If you go back a bit in time, in 2011, both gold and fixed-income instruments outdid equities convincingly. With different asset classes behaving unpredictably each year, how can investors tailor their portfolios and make the best of these swings?

One way could be by investing in multi-asset funds which take exposure to these three asset classes. By investing in debt, equity and gold in different proportions, depending on the market conditions, these funds are designed to help you make the best of the movements in all of these asset classes.

Suitability A diversified equity mutual fund is typically considered more risky than a debt fund. But within equity and debt too, the risks depend on its various individual components.

For instance, small- and mid-cap stocks and funds tend to be more volatile than their large-cap cousins. In case of debt, government securities have near zero default risk, while corporate debt based on credit rating carries credit risk. Gold has historically acted as a good hedge during periods of economic and financial turmoil, and is considered a safe haven when markets are shaky.

Due to its exposure to debt and gold, multi-asset funds tend to be less risky than pure diversified equity schemes. But at the same time, even within multi-asset funds, there are varying options to suit your risk appetite. IDFC Asset Allocation fund, for instance, provides three options — conservative, moderate and aggressive, with varying levels of maximum investment in debt, equity and gold. You can choose the one that works well for you.

Funds and performance Multi-asset funds come in several shapes. They can be those that invest in equity and debt, shifting allocations dynamically, like the BOI AXA Equity Debt Rebalancer Fund or those that invest predominantly in equity and gold, such as the UTI Wealth Builder Series II.

But funds that currently invest in all three asset classes — equity, debt and gold — include Quantum Multi Asset Fund, Kotak Asset Allocation, IDFC Asset Allocation, Axis Triple Advantage, HSBC Managed Solutions and Principal Asset Allocation.

Most funds invest in equity, debt and gold ETF mutual fund schemes. This gives them the nature of fund-of-funds. Each has its own investment and asset allocation style. Kotak Multi Asset Allocation fund, for instance, can allocate 75-90 per cent of its assets to debt and 5-20 per cent to equity and gold, respectively. Quantum Multi Asset fund can have 25-65 per cent in equities, 25-65 per cent in debt and money market instruments, and 10-20 per cent in gold. As of March 2016, the aggressive plan of the IDFC Asset Allocation fund holds 13 per cent of its assets in Goldman Sachs Gold ETF, 38 per cent in debt, and 49 per cent in equity. Exposure to its debt and equity is through other IDFC MF debt schemes.

Being a relatively recent category, most multi-asset funds have a short track record. Axis Triple Advantage and the other two funds discussed above have a history of more than five years. These funds have returned 7-10 per cent in the five-year period.

Their returns compare reasonably with pure equity/debt/gold schemes. Large-cap diversified equity funds on an average have given returns of 9 per cent over five years; income and gilt funds as a category have gained 8-9 per cent over the same period; and gold funds have moved up by 5 per cent.

Overall, if you are an investor who likes to play it safe, these funds may suit you. If you are the kind who doesn’t have the time or the ability to monitor the movements in debt, equity and gold and invest in them separately, multi-asset funds can be a way out.

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