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Is it desirable to reduce equity and have some exposure to multi-asset funds?

Decide the asset allocation you would like to have in different asset classes and build your own portfolio accordingly, suggests Ashutosh Gupta

Is it desirable to reduce equity and have some exposure to multi-asset funds?
- Mahesh Jain

Well, it appears to me that you are looking to use multi-asset funds more opportunistically to time the markets, given the level of equity markets and to shift opportunistically from equity to multi asset which I think is undesirable and I would advise against it. Rather, I would suggest you first decide what kind of asset allocation across different asset classes you would want to maintain.

Typically, multi-asset funds invest in equity, debt and gold and each of these asset classes has a role to play in the portfolio. Equity is meant for wealth creation over the long term and it has the maximum return potential even though it is volatile. Debt, in contrast, offers relatively steady growth, even though the returns are much more modest. So, you should expect returns which are slightly above the rate of inflation with debt. And gold, although we at Value Research don't look very favourably at gold as an investment-worthy asset class, the historic trends suggest that it acts as a good hedge to your equity investments. So, whenever equity markets experience a sharp fall, gold tends to do better. From that perspective, some investors find merit in having a certain allocation of gold in their portfolio.

So, now broadly, I would say that for any long-term investor, the first thing is to figure out what kind of asset allocation he wants to keep across equity, debt and gold and then he can simply combine them by himself as well by investing in flexi-cap funds (erstwhile multi-cap funds), short-duration funds and gold ETFs, and get a multi-asset allocation. The issue with multi-asset funds is that right now different funds in the category have fairly different asset allocations. So, the equity allocation of these funds ranges in a very wide range and they also can be managed slightly dynamically over a period of time. So, at times, you may get your desired asset allocation with multi-asset funds and at times, you may not and that's why, you may want to consider creating your own multi-asset allocation.

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