Are Multi-Asset Funds a Good Investment?

Published On: 17-Dec-2021

Not all asset classes have been winners consistently in the investing world since different asset classes may react differently to macroeconomic events. As such, asset classes like equities, debt, gold, real estate etc., tend to perform in their respective economic cycles.

While equities may perform better during periods of high economic growth, debt may perform better during periods of decreasing interest rate scenario. Similarly, gold may be a better performer when asset classes like equity and debt seem volatile and uncertain, as gold is considered a safer investment option.

However, timing the economic cycles of such asset classes may not be easy for many of retail investors without extensive access to the information, and thus, investors may diversify their investment portfolio across different asset classes and aim to balance the risk and reward. Alternatively, investors may simply consider investing in multi-asset funds that invests across various asset classes. Further, professional fund managers would be better placed to decide on the optimal asset allocation between the assets.

What are Multi-Asset Funds?

As per the SEBI Guidelines on the categorisation of mutual fund schemes, a multi-asset fund is a fund that invests in at least three asset classes with a minimum allocation of 10% in each of the three asset classes. Exposure across different asset classes enables the investors to capitalise on the respective economic cycles of varying asset classes.

Such funds have Assets Under Management (AUM) of Rs. 17,059 crores as of August 31, 2021.

Source: Association of Mutual Funds in India – AMFI

Taxation of Multi-Asset Funds

As per the tax laws, mutual fund schemes are classified as equity-oriented funds and other funds based on their investment pattern. If a fund invests at least 65% of its net assets in equity and equity-related instruments, such funds can be classified as equity-oriented funds. All the other funds are classified in the residual category of “other than equity-oriented funds.” The tax rates for gains from such funds are also different.

The table below summarises the tax rates for investors:

If the scheme is classified as ->

Equity oriented Funds

Other Funds

Short Term Capital Gain

 

 

Holding Period

Less than 12 months

Less than 36 months

Tax Rate

15%

Regular tax rates

Long Term Capital Gain

 

 

Holding Period

12 months or more

36 months or more

Tax Rate

10%

20%

Indexation allowed

No

Yes

Further, Long-term Capital Gains (LTCG) from the sale/ redemption of equity shares and equity-oriented mutual funds taken together are exempt up to Rs. 1 lakh per year.

If the investor has invested in “Payout of income distribution cum Capital Withdrawal” (erstwhile called dividend option,” the investors may also receive some income from such funds. Such income received is taxed at the regular tax rates as applicable and is also subject to 10% TDS (Tax Deduction at Source) if the distributed income from mutual fund exceeds Rs. 5,000.

Investing in Multi-Asset Funds

Multi-asset funds may be a prudent investment option for the investors, as it allows diversified investment exposure. Further, the asset allocation across different asset classes can also be managed by the professional fund management team. This provides an opportunity to sail through the economic cycles and optimise the portfolio returns.

Further, while the SEBI guidelines provide a minimum of 10% investment exposure across all three asset classes, fund managers enjoy the flexibility to maintain investment from 10-80% in each asset class. The investors may invest digitally through website (utimf.com) or mobile app (UTI MF) or by physically submitting the duly filled application forms at any of our Official Points of Acceptance. 

Note: The tax provisions, as mentioned in the article, are for illustrative purposes only and are updated as per the Union Budget 2021 passed by the Parliament. The tax rates for capital gains will be as per the tax laws applicable on the date of redemption/ sale and not on the date of investment.