A section of wealth managers points out that there has been rapid growth in the mutual fund industry, with 9.7 million new investors coming in the last 12 months. As valuations in equities are no longer cheap and with many first-time investors moving from bank deposits, the need for low-volatility products has multiplied.
“Equity valuations are expensive. Conservative investors looking to earn inflation-beating returns with low volatility and tax efficiency are using multi-asset funds,” said Vineet Nanda, founder of Sift Capital. Nanda said such schemes work well for first-timers moving away from FDs.
Multi-asset funds allocate to different asset classes be it equity, debt, gold, silver, REITs and international equities. Many investors like this, as it helps them gain exposure to different asset classes through a single product. It typically helps investors who cannot afford the services of a financial planner as it helps them maintain their asset allocation, and since it has a defined allocation to each asset class, it helps in auto asset allocation.
Multi-asset schemes from ICICI Prudential Mutual Fund, Aditya Birla Sun Life MF, HDFC MF, Kotak MF and SBI MF are popular because they offer equity taxation (12.5% for holdings of over a year). In such schemes, the equity plus arbitrage allocation is at a minimum of 65%, with the rest allocated across debt, gold, REITs and international equities.
Multi-asset funds from WhiteOak Capital, Nippon, and DSP allocate 35-65% to equity. Investors in these schemes will have to pay capital gains tax of 12.5% after holding for two years.Equity tax treatment means investors need to pay only 12.5% capital gains tax if held for more than a year.